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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 13, 1998
AMERICAN ONCOLOGY RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-26190 84-1213501
(State or other (Commission File (IRS Employer
jurisdiction Number) Identification Number)
of incorporation)
16825 Northchase Drive, Suite 1300
Houston, Texas 77060
(Address of principal executive office) (Zip Code)
(281) 873-2674
(Registrant's telephone number, including area code)
----------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events.
On December 13, 1998, American Oncology Resources, Inc., a Delaware
corporation ("AOR"), Physician Reliance Network, Inc., a Texas corporation
("PRN"), and Diagnostic Acquisition, Inc., a Texas corporation and a wholly
owned subsidiary of AOR ("Merger Subsidiary"), entered into an Agreement and
Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement and
subject to the terms and conditions set forth therein, Merger Subsidiary will be
merged with and into PRN, with PRN being the surviving corporation of such
merger (the "Merger"), and as a result of the Merger, PRN will become a wholly
owned subsidiary of AOR. At the Effective Time (as defined in the Merger
Agreement) of the Merger, each issued and outstanding share of Common Stock, no
par value per share, of PRN ("PRN Common Stock") will be converted into the
right to receive 0.94 shares of Common Stock, par value $.01 per share, of AOR
("AOR Common Stock").
In connection with the execution of the Merger Agreement, AOR and PRN
entered into a Stock Option Agreement (the "AOR Option Agreement") pursuant to
which AOR granted to PRN an option to purchase up to approximately 10.1% of the
outstanding shares of AOR Common Stock, exercisable in the circumstances
specified in the AOR Option Agreement. In addition, in connection with the
execution of the Merger Agreement, AOR and PRN entered into a Stock Option
Agreement (the "PRN Option Agreement" and, together with the AOR Option
Agreement, the "Option Agreements") pursuant to which PRN granted to AOR an
option to purchase up to approximately 10.1% of the outstanding shares of PRN
Common Stock, exercisable in the circumstances specified in the PRN Option
Agreement.
The Merger is subject to termination or expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, approval
by AOR's and PRN's stockholders and certain other conditions.
A copy of the Merger Agreement is attached hereto as Exhibit 2.1 and
copies of the Option Agreements are attached hereto as Exhibits 2.2 and 2.3.
The foregoing description is qualified in its entirety by reference to the full
text of such exhibits. A joint press release announcing the execution of the
Merger Agreement and the Option Agreements was issued on December 14, 1998 and
is attached hereto as Exhibit 99.1.
Item 7(c). Exhibits.
Exhibit 2.1 Agreement and Plan of Merger dated as of December 11, 1998
among American Oncology Resources, Inc., Physician Reliance
Network, Inc., and Diagnostic Acquisition, Inc. (Schedules and
Exhibits omitted)
Exhibit 2.2 Company Stock Option Agreement dated as of December 11, 1998
between American Oncology Resources, Inc., and Physician
Reliance Network, Inc.
Exhibit 2.3 Parent Stock Option Agreement dated as of December 11, 1998
between American Oncology Resources, Inc., and Physician
Reliance Network, Inc.
Exhibit 99.1 Joint Press Release dated December 14, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN ONCOLOGY RESOURCES, INC.
Date: December 15, 1998 By: /s/ R. Dale Ross
----------------------------------
Name: R. Dale Ross
Title: Chairman of the Board and
Chief Executive Officer
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN ONCOLOGY RESOURCES, INC.
DIAGNOSTIC ACQUISITION, INC.
AND
PHYSICIAN RELIANCE NETWORK, INC.
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TABLE OF CONTENTS
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PAGE
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ARTICLE I. THE MERGER......................................................... 1
Section 1.1. The Merger.................................................... 1
Section 1.2. Conversion of Capital Stock................................... 2
Section 1.3. Exchange of Certificates...................................... 3
Section 1.4. Time and Place of Closing..................................... 5
ARTICLE II. OTHER MATTERS RELATING TO CORPORATE ORGANIZATION AND GOVERNANCE... 5
Section 2.1. Actions to be Taken........................................... 5
Section 2.2. Corporate Headquarters........................................ 7
Section 2.3. The Surviving Corporation..................................... 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 7
Section 3.1. Corporate Existence and Power................................. 7
Section 3.2. Corporate Authorization....................................... 8
Section 3.3. Subsidiaries.................................................. 8
Section 3.4. Affiliated Physician Groups................................... 9
Section 3.5. Governmental Authorization.................................... 9
Section 3.6. Non-Contravention............................................. 10
Section 3.7. Capitalization................................................ 11
Section 3.8. SEC Reports and Financial Statements.......................... 12
Section 3.9. Absence of Certain Changes or Events.......................... 13
Section 3.10. Disclosure Documents.......................................... 13
Section 3.11. Litigation.................................................... 13
Section 3.12. Contracts..................................................... 14
Section 3.13. Properties and Assets......................................... 14
Section 3.14. Taxes......................................................... 15
Section 3.15. Employee Benefit Plans; ERISA................................. 15
Section 3.16. Accounts Receivable........................................... 17
Section 3.17. Labor Matters................................................. 17
Section 3.18. Compliance with Laws.......................................... 18
Section 3.19. Finders' Fees................................................. 18
Section 3.20. Opinion of Financial Advisor.................................. 18
Section 3.21. Accounting Matters............................................ 18
Section 3.22. Company Rights Plan........................................... 18
Section 3.23. Licenses; Approvals........................................... 19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT.......................... 19
Section 4.1. Corporate Existence and Power................................. 19
Section 4.2. Corporate Authorization....................................... 20
Section 4.3. Subsidiaries.................................................. 20
Section 4.4. Affiliated Physician Groups................................... 21
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Section 4.5. Governmental Authorization.................................... 21
Section 4.6. Non-Contravention............................................. 22
Section 4.7. Capitalization................................................ 22
Section 4.8. Organization of Merger Sub.................................... 23
Section 4.9. No Prior Activities........................................... 23
Section 4.10. SEC Reports and Financial Statements.......................... 23
Section 4.11. Absence of Certain Changes or Events.......................... 24
Section 4.12. Disclosure Documents.......................................... 24
Section 4.13. Litigation.................................................... 25
Section 4.14. Contracts..................................................... 25
Section 4.15. Properties and Assets......................................... 25
Section 4.16. Taxes......................................................... 26
Section 4.17. Employee Benefit Plans; ERISA................................. 26
Section 4.18. Accounts Receivable........................................... 28
Section 4.19. Labor Matters................................................. 28
Section 4.20. Compliance with Laws.......................................... 28
Section 4.21. Finders' Fees................................................. 29
Section 4.22. Opinion of Financial Advisor.................................. 29
Section 4.23. Accounting Matters............................................ 29
Section 4.24. Parent Rights Plan............................................ 29
Section 4.25. Licenses; Approvals........................................... 29
ARTICLE V. COVENANTS OF THE COMPANY........................................... 30
Section 5.1. Conduct of Business of the Company Pending the Effective Time. 30
Section 5.2. Access to Financial and Operational Information............... 32
Section 5.3. Notices of Certain Events..................................... 33
Section 5.4. Letter of Company's Accountants............................... 33
Section 5.5. Opinion of Financial Advisor.................................. 33
ARTICLE VI. COVENANTS OF PARENT............................................... 33
Section 6.1. Conduct of Business of Parent Pending the Effective Time...... 33
Section 6.2. Access to Financial and Operational Information............... 36
Section 6.3. Notices of Certain Events..................................... 36
Section 6.4. Letter of Parent's Accountants................................ 36
Section 6.5. Opinion of Financial Advisor.................................. 37
Section 6.6. Quotation on NMS.............................................. 37
Section 6.7. Employment Offers............................................. 37
ARTICLE VII. COVENANTS OF PARENT AND THE COMPANY.............................. 37
Section 7.1. Advise of Certain Changes..................................... 37
Section 7.2. Agreement to Cooperate; Further Assurances.................... 38
Section 7.3. No Solicitation............................................... 38
Section 7.4. Joint Proxy Statement; Registration Statement................. 39
Section 7.5. Stockholders' Meetings........................................ 39
Section 7.6. Confidential Information...................................... 40
Section 7.7. Communications................................................ 40
Section 7.8. Stock Option Plans and Delayed Delivery Shares................ 40
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Section 7.9. Registration of Company Stock Option Plans.................... 41
Section 7.10. Obligations of Merger Sub..................................... 41
Section 7.12. Indemnification and Insurance................................. 42
Section 7.13. Supplemental Disclosure Schedules............................. 42
Section 7.14. New Name for Parent........................................... 42
Section 7.15. Affiliates.................................................... 43
Section 7.16. Severance Payments............................................ 43
ARTICLE VIII. CONDITIONS OF THE MERGER........................................ 43
Section 8.1. Conditions to Obligations of Parent and Merger Sub............ 43
Section 8.2. Conditions to Obligations of the Company...................... 44
Section 8.3. Conditions to Obligations of Each Party....................... 45
ARTICLE IX. TERMINATION OF AGREEMENT.......................................... 46
Section 9.1. Termination................................................... 46
Section 9.2. Certain Actions Prior to Termination.......................... 48
Section 9.3. Effect of Termination......................................... 48
Section 9.4. Termination Fee............................................... 48
ARTICLE X. MISCELLANEOUS...................................................... 49
Section 10.1. Further Assurances........................................... 49
Section 10.2. Survival..................................................... 49
Section 10.3. Notices...................................................... 49
Section 10.4. Governing Laws and Consent to Jurisdiction................... 50
Section 10.5. Binding Upon Successors and Assigns; Assignment.............. 51
Section 10.6. Severability................................................. 51
Section 10.7. Entire Agreement; No Third Party Beneficiaries............... 51
Section 10.8. Other Remedies............................................... 51
Section 10.9. Amendment and Waivers........................................ 51
Section 10.10. Disclosure Schedules......................................... 52
Section 10.11. No Waiver.................................................... 52
Section 10.12. Construction of Agreement.................................... 52
Section 10.13. Counterparts................................................. 52
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EXHIBITS AND SCHEDULES
----------------------
Exhibits
- --------
Exhibit A = Company Affiliate Agreement
Exhibit B = Parent Affiliate Agreement
Exhibit C = Company Stock Option Agreement
Exhibit D = Parent Stock Option Agreement
Exhibit E = Parent Restated Certificate
Exhibit F = Parent Restated Bylaws
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Schedules
- ---------
Company Disclosure Schedule
Parent Disclosure Schedule
DEFINITIONS
-----------
DEFINED TERM SECTION
- ------------ -------
Acquisition Proposal 7.3(a)
Affiliate 3.21
Agreement Introduction
APB No. 16 3.21
Articles of Merger 1.1(b)
Certificates 1.3(b)
Code Recital C
Company Introduction
Company Affiliated Physician Groups 3.4
Company Affiliated Physicians 3.4
Company Affiliated Providers 3.4
Company Balance Sheet 3.8
Company Common Stock 1.2(b)
Company Disclosure Schedule Article III
Company ERISA Affiliate 3.15(b)
Company Financial Advisor 3.19
Company Options 3.7
Company Preferred Stock 3.7
Company Rights 3.7(i)
Company Rights Agreement 3.7(i)
Company SEC Reports 3.8
Company Securities 3.7(v)
Company Series One Junior Preferred Stock 3.7(i)
Company Stock Option Plans 7.8(a)
Company Subsidiaries 3.3
Confidentiality Agreement 5.2
Constituent Corporations Introduction
Conversion Price 3.7(d)(v)
DGCL 2.1
Disclosure Schedule Update 7.13
Effective Date 1.1(b)
Effective Time 1.1(b)
ERISA 3.15(b)
Exchange Act 3.5(c)
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Exchange Agent 1.3(a)
Exchange Fund 1.3(a)
Exchange Ratio 1.2(c)
Governmental Entity 3.5
HSR Act 3.5(b)
IRS 3.14(b)
Joint Proxy Statement 3.10
Lien 3.6(d)
Material Adverse Effect 3.1
Merger Recital A
Merger Sub Introduction
New Parent Option 7.8(a)
NMS 1.3(e)
Outside Consultant 7.14
Parent Introduction
Parent Affiliated Physicians 4.4
Parent Affiliated Physician Groups 4.4
Parent Affiliated Providers 4.4
Parent Balance Sheet 4.10
Parent Common Stock 1.2(c)
Parent Disclosure Schedule Article IV
Parent ERISA Affiliate 4.17(b)
Parent Financial Advisor 4.21
Parent Options 4.7
Parent Preferred Stock 4.7
Parent Restated Bylaws 2.1(b)
Parent Restated Certificate 2.1(a)
Parent Rights 1.2(c)
Parent Rights Agreement 1.2(c)
Parent SEC Reports 4.10
Parent Securities 4.7
Parent Series A Preferred Stock 1.2(c)
Parent Subsidiaries 4.3
Registration Statement 3.10
SEC 3.8
Securities Act 3.5(d)
6% Note 3.7(d)(v)
Superior Proposal 7.3(a)
Surviving Corporation 1.1(a)
Taxes 3.14(a)
TBCA 1.1(a)
Welfare Plan 3.15(b)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 11, 1998 (this
"Agreement"), is by and among AMERICAN ONCOLOGY RESOURCES, INC., a Delaware
corporation ("Parent"), DIAGNOSTIC ACQUISITION, INC., a Texas corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), and PHYSICIAN RELIANCE
NETWORK, INC., a Texas corporation (the "Company") (Merger Sub and the Company
being hereinafter collectively referred to as the "Constituent Corporations").
RECITALS
A. The Boards of Directors of Parent, Merger Sub and the Company have
approved, and deem it advisable that their respective stockholders approve, the
transactions provided for herein in which Merger Sub would merge with and into
the Company, and the Company would become a wholly owned subsidiary of Parent
(the "Merger").
B. Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to the parties' willingness to enter into this
Agreement: (i) certain Affiliates (as defined herein) of the Company have
entered into an Affiliate Agreement substantially in the form of Exhibit A
attached hereto; (ii) certain Affiliates of the Parent have entered into an
Affiliate Agreement substantially in the form of Exhibit B attached hereto;
(iii) Parent and the Company have entered into a Stock Option Agreement in the
form of Exhibit C hereto ("Company Stock Option Agreement"); and (iii) Parent
and the Company have entered into a Stock Option Agreement in the form of
Exhibit D hereto ("Parent Stock Option Agreement").
C. For Federal income tax purposes, it is intended that the Merger shall
qualify as a tax-free reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
D. For accounting purposes, it is intended that the Merger shall be
accounted for as a pooling-of-interests.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties agree as
follows:
ARTICLE I.
THE MERGER
Section 1.1 The Merger.
(a) At the Effective Time (as defined below) and subject to the terms and
conditions hereof and the provisions of the Texas Business Corporation Act (the
"TBCA"): (i) Merger Sub will be merged with and into the Company in accordance
with the TBCA; (ii) the separate
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existence of Merger Sub shall thereupon cease; and (iii) the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"), as a wholly owned subsidiary of Parent.
(b) Subject to the terms and conditions hereof, the Merger shall be
consummated as promptly as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all of the conditions to each party's obligation
to consummate the Merger contained in Article VIII, by duly filing appropriate
articles of merger (the "Articles of Merger"), together with a plan of merger
attached thereto setting forth only that information required by Article 5.01(B)
of the TBCA, in such form as is required by, and executed in accordance with,
the relevant provisions of the TBCA. The Merger shall be effective at such time
as the Articles of Merger shall have been duly filed with the Secretary of State
of the State of Texas and shall have become effective in accordance with the
TBCA (the "Effective Time"). The date on which the Effective Time shall occur
is referred to herein as the "Effective Date."
(c) The separate corporate existence of the Company, as the Surviving
Corporation, with all its purposes, objects, rights, privileges, powers,
certificates and franchises, shall continue unimpaired by the Merger. The
Surviving Corporation shall succeed to all the properties and assets of the
Constituent Corporations and to all debts, causes of action and other interests
due or belonging to the Constituent Corporations and shall be subject to, and
responsible for, all the debts, liabilities and duties of the Constituent
Corporations with the effect set forth in Article 5.06 of the TBCA.
Section 1.2. Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of the
capital stock of Merger Sub shall be converted into and become one fully paid
and nonassessable share of Common Stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock. All shares of Common Stock, no par
value per share, of the Company ("Company Common Stock") that are owned by the
Company as treasury stock and any shares of Company Common Stock owned by any
wholly owned subsidiary of the Company shall be cancelled and retired and shall
cease to exist, and no stock of Parent or other consideration shall be delivered
in exchange therefor.
(c) Exchange Ratio for Company Common Stock. Subject to Section 1.3(e),
each issued and outstanding share of Company Common Stock (other than shares to
be cancelled in accordance with Section 1.2(b)) shall be converted into the
right to receive .94 (the "Exchange Ratio") fully paid and nonassessable shares
of Common Stock, par value $.01 per share, of Parent (the "Parent Common
Stock"), including the corresponding number of rights (the "Parent Rights") to
purchase shares of Series A Preferred Stock of Parent (the "Parent Series A
Preferred Stock") pursuant to the Rights Agreement dated as of May 29, 1997,
between Parent and American Stock Transfer & Trust Company, as Rights Agent (the
"Parent Rights Agreement"). All references in this Agreement to Parent Common
Stock to be received pursuant to the Merger shall be deemed to include the
Parent Rights. All such shares of Company Common Stock,
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when so converted, together with the associated Company Rights (as defined in
Section 3.7), shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares and/or Company Rights, shall cease to have any
rights with respect 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 upon the surrender of such
certificate in accordance with Section 1.3, without interest.
Section 1.3. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall deposit with
an exchange agent designated by Parent (and reasonably acceptable to the
Company)(the "Exchange Agent"), for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance with this Article I, through
the Exchange Agent, certificates representing the shares of Parent Common Stock
(such shares of Parent Common Stock, together with any dividends or
distributions with respect thereto and cash to be paid in lieu of fractional
shares of Parent Common Stock, being hereinafter referred to as the "Exchange
Fund") issuable pursuant to Section 1.2 in exchange for outstanding shares of
Company Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates")
whose shares were converted pursuant to Section 1.2 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 and the Company
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. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, 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 that such holder
has the right to receive pursuant to the provisions of this Article I, and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Company Common Stock that is not registered in the
transfer records of the Company, a certificate representing the proper number of
shares of Parent Common Stock may be issued to a transferee if the Certificate
representing such Company Common 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 1.3, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing shares of Parent Common
Stock and cash in lieu of any fractional shares of Parent Common Stock as
contemplated by this Section 1.3. Lost and mutilated shares of Company Common
Stock shall be treated in the same manner as they are currently treated by the
Company.
<PAGE>
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared with respect to Parent Common Stock 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 1.3(e),
in each case until the holder of record of such Certificate shall surrender such
Certificate. 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 any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 1.3(e) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to 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 Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 1.3(c) or 1.3(e)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Company Common
Stock.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement to the contrary, no certificates or scrip for fractional shares of
Parent Common Stock shall be issued in connection with the Merger. All shares
of Parent Common Stock to which a holder of shares of Company Common Stock is
entitled in connection with the Merger shall be aggregated. If a fractional
share results from such aggregation, in lieu of any such fractional share, each
holder of shares of Company Common Stock who would otherwise have been entitled
to receive a fraction of a share of Parent Common Stock upon surrender of
Certificates for exchange pursuant to Article I shall be entitled to receive
from the Exchange Agent a cash payment (without interest) equal to such fraction
multiplied by the average closing price per share of Parent Common Stock on The
Nasdaq Stock Market's National Market ("NMS") during the three (3) trading days
immediately prior to the Effective Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the stockholders of the Company for one year after the
Effective Time shall be delivered to Parent, upon demand, and any stockholders
of the Company who have not theretofore complied with this Article I shall
thereafter look only to Parent 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.
(g) No Liability. Neither Parent nor the Company shall be liable to any
holder of shares of Company Common Stock or Parent Common Stock, as the case may
be, for such shares (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates shall not have been surrendered
prior to the end of the applicable period after the Effective Time under escheat
<PAGE>
laws (or immediately prior to such earlier date on which any shares of Parent
Common Stock, any cash in lieu of fractional shares of Parent Common Stock or
any dividends or distributions with respect to Parent Common Stock in respect of
such Certificates would otherwise escheat to or become the property of any
governmental entity), any such shares, cash, dividends or distributions in
respect of such Certificates shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to the
Parent.
Section 1.4. Time and Place of Closing. The closing of the Merger shall
take place at the offices of Mayor, Day, Caldwell & Keeton, L.L.P., 700
Louisiana, Suite 1900, Houston, Texas 77002, as promptly as practicable after
satisfaction or, to the extent permitted hereunder, waiver of all of the
conditions to each party's obligation to consummate the Merger contained in
Article VIII.
ARTICLE II.
OTHER MATTERS RELATING TO
CORPORATE ORGANIZATION AND GOVERNANCE
Section 2.1. Actions to be Taken. Subject to the terms and conditions
hereof, the following actions shall be taken:
(a) Prior to the Closing, but effective as of the Effective Time, Parent
shall file with the Delaware Secretary of State, and in accordance with the
Delaware General Corporation Law ("DGCL"), the Amended and Restated Certificate
of Incorporation, substantially in the form attached hereto as Exhibit E (the
"Parent Restated Certificate").
(b) As of the Effective Time, the Bylaws of Parent, as amended, shall be
amended and restated to read in their entirety substantially in the form
attached hereto as Exhibit F (the "Parent Restated Bylaws").
(c) The number of directors comprising the full Board of Directors of
Parent as of the Effective Time shall be fourteen (14) directors. As of the
Effective Time, the following persons shall comprise the Board of Directors of
Parent, in each case, until each such person's earlier death, resignation or
removal in accordance with the Parent Restated Certificate:
Name Class
---- -----
J. Taylor Crandall I
James E. Dalton I
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Name Class
---- -----
Robert W. Daly I
Edward E. Rogoff I
Burton S. Schwartz, M.D. I
Nancy G. Brinker II
John T. Casey II
Stephen Jones II
Stanley A. Marks II
Robert A. Ortenzio II
Russell S. Carson III
Richard B. Mayor III
Boone Powell, Jr. III
R. Dale Ross III
(d) As of the Effective Time, the following persons shall comprise
Parent's Executive, Audit, Nominating and Compensation Committees, in each case,
until each such person's earlier death, resignation or removal in accordance
with the Parent Restated Bylaws:
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<CAPTION>
Executive Compensation Audit Nominating
Committee Committee Committee Committee
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<S> <C> <C> <C>
R. Dale Ross Russell S. Carson Richard B. Mayor Russell S. Carson
Russell S. Carson Robert A. Ortenzio James Dalton R. Dale Ross
Richard B. Mayor Boone Powell, Jr. Nancy G. Brinker James Dalton
Boone Powell, Jr. John T. Casey Richard B. Mayor
John T. Casey Boone Powell, Jr.
</TABLE>
(e) As of the Effective Time, Parent's Board of Directors shall cause
R. Dale Ross to continue to be designated as Chairman of the Board and Chief
Executive Officer of Parent, to serve until his successor is duly elected and
qualified or until his earlier death, resignation or removal in accordance with
the Parent Restated Bylaws.
(f) As of the Effective Time, Parent's Board of Directors shall cause the
following individuals to be appointed to the office set forth opposite their
respective names below, in each case to serve until their respective successors
are duly elected and qualified or until earlier death, resignation or removal in
accordance with the Parent Restated Bylaws:
Title Name
----- ----
Chief Executive Officer R. Dale Ross
President Lloyd K. Everson, M.D.
Chief Operating Officer O. Edwin French
Chief Financial Officer L. Fred Pounds
Chief Development Officer David S. Chernow
Executive Vice President Joseph S. Bailes, M.D.
Chief Compliance Officer Leo Sands
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Section 2.2. Corporate Headquarters. Following the Effective Date,
Parent's corporate headquarters will continue to be 16825 Northchase Drive,
Suite 1300, Houston, Texas 77060.
Section 2.3. The Surviving Corporation.
(a) Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time, and until thereafter altered, amended or repealed in accordance with the
TBCA and the Articles of Incorporation and Bylaws of the Surviving Corporation,
shall be the Articles of Incorporation of the Surviving Corporation.
(b) Bylaws. At the Effective Time, the Bylaws of Merger Sub as in effect
immediately prior to the Effective Time, and until thereafter altered, amended
or repealed in accordance with the TBCA and the Articles of Incorporation and
Bylaws of the Surviving Corporation, shall be the Bylaws of the Surviving
Corporation.
(c) Directors and Officers. At and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws, the directors and officers of Merger Sub at the Effective Time shall be
the directors and officers of the Surviving Corporation.
(d) Assets, Liabilities, Reserves and Accounts. At the Effective Time,
the assets, liabilities, reserves and accounts of each of the Merger Sub and the
Company shall be taken up on the books of the Surviving Corporation at the
amounts at which they respectively shall be carried on the books of said
corporations immediately prior to the Effective Time, except as otherwise set
forth on this Agreement and subject to such adjustments, or elimination of
intercompany items, as may be appropriate in giving effect to the Merger in
accordance with generally accepted accounting principles.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company has delivered to Parent on or prior to the execution hereof a
disclosure schedule (the "Company Disclosure Schedule") that contains
appropriate references to identify the representations and warranties herein to
which the information in such Company Disclosure Schedule relates. The
information in the Company Disclosure Schedule shall be deemed a part of the
Company's representations and warranties herein. Except as disclosed in the
Company Disclosure Schedule, the Company represents and warrants to Parent as
set forth below:
Section 3.1. Corporate Existence and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas and has
<PAGE>
all corporate power required to own or lease its properties and to carry on its
business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified or to be in good standing would not have a Material
Adverse Effect on the Company. For purposes of this Agreement, a "Material
Adverse Effect," with respect to any person or entity, shall mean a material
adverse effect on the financial condition, business, properties, assets,
liabilities (including contingent liabilities), results of operations or
prospects of such person or entity and its direct and indirect parents and
subsidiaries, taken as a whole, other than any such adverse effects relating to
general economic or market conditions or to conditions affecting the healthcare
industry in general. The Company has delivered or made available to Parent true
and complete copies of the articles of incorporation and bylaws of the Company.
The Company is not, and has not been within the two years immediately preceding
the date of this Agreement, a subsidiary or division of another corporation, nor
has the Company within such time owned, directly or indirectly, any shares of
Parent Common Stock.
Section 3.2. Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement, and each agreement to be executed
by the Company in connection herewith, and the consummation by the Company of
the transactions contemplated hereby and thereby, are within the Company's
corporate powers and have been duly authorized by all necessary corporate
action, except for the approval of this Agreement and the transactions
contemplated hereby by the Company's stockholders to the extent required by
applicable law. This Agreement and each agreement to be executed by the Company
in connection herewith have been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery hereof and
thereof by each other party hereto and thereto, constitute valid and binding
agreements of the Company, enforceable against the Company in accordance with
their terms.
Section 3.3. Subsidiaries. The Company does not directly or indirectly
own any interest in any corporation, partnership, joint venture or other
business association or entity, foreign or domestic. (Such corporations,
partnerships, joint ventures or other business entities of which the Company
owns, directly or indirectly, greater than fifty percent of the shares of
capital stock or other equity interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to cast at least
a majority of the votes that may be cast by all shares or equity interest having
ordinary voting power for the election of directors or other governing body of
such entity are hereinafter referred to as the "Company Subsidiaries.")
(a) Each Company Subsidiary that is a corporation is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, except where the failure to be so would not
individually or in the aggregate have a Material Adverse Effect on the Company.
Each Company Subsidiary that is a partnership or a limited liability company is
duly formed and validly existing under the laws of its jurisdiction of
formation, except where the failure to be so would not individually or in the
aggregate have a Material Adverse Effect on the Company.
<PAGE>
(b) Each Company Subsidiary has the corporate power, the limited liability
company power or the partnership power, as the case may be, to carry on its
business as it is now being conducted or presently proposed to be conducted,
except where the failure to be so would not individually or in the aggregate
have a Material Adverse Effect on the Company.
(c) Each Company Subsidiary that is a corporation is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have a
Material Adverse Effect on the Company. Each Company Subsidiary that is a
partnership is duly qualified as a foreign partnership authorized to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified would
not individually or in the aggregate have a Material Adverse Effect on the
Company.
(d) All of the outstanding shares of capital stock of the Company
Subsidiaries that are corporations are validly issued, fully paid and
nonassessable.
(e) All of the outstanding shares of capital stock of, or other ownership
interests in, each of the Company Subsidiaries owned by the Company or a Company
Subsidiary are owned by the Company or by a Company Subsidiary free and clear of
any liens, claims, charges or encumbrances.
(f) There are not now, and at the Effective Time there will not be, any
voting trusts, standstill, stockholder or other agreements or understandings to
which Company or any of the Company Subsidiaries is a party or is bound with
respect to the voting of the capital stock of Company or any of the Company
Subsidiaries.
Section 3.4. Affiliated Physician Groups. The Company Disclosure Schedule
sets forth each physician group or entity with which the Company or any of the
Company Subsidiaries is affiliated, either through a management or service
agreement or other arrangement (the "Company Affiliated Physician Groups"). The
Company Disclosure Schedule also sets forth the number of physicians employed or
affiliated with each such Company Affiliated Physician Group as of December 1,
1998 (collectively, the "Company Affiliated Physicians" and, together with the
Company Affiliated Physician Groups, the "Company Affiliated Providers"). The
Company has made available to Parent true and correct copies of the material
documents (i) by which each Company Affiliated Physician Group became affiliated
with the Company or one of the Company Subsidiaries and (ii) that currently
define and set forth the material terms of affiliation between the Company or
one of the Company Subsidiaries and each Company Affiliated Physician Group.
Section 3.5. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement, and each agreement to be executed
by the Company pursuant hereto, and the consummation by the Company of the
transactions contemplated hereby and thereby, require no action by or in respect
of, or filing with, any court,
<PAGE>
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign ("Governmental Entity"), other than:
(a) the filing of the Articles of Merger in accordance with the TBCA;
(b) compliance with any applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act");
(c) compliance with any applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder
(the "Exchange Act");
(d) compliance with any applicable requirements of the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act");
(e) compliance with any applicable foreign or state securities or "blue
sky" laws, rules or regulations; and
(f) such other filings or registrations with, or authorizations, consents
or approvals of, Governmental Entities, the failure of which to make or obtain
(i) would not reasonably be expected to have a Material Adverse Effect on the
Company or (ii) would not materially and adversely affect the ability of the
Company to consummate the transactions contemplated hereby and operate its
business as heretofore operated.
Section 3.6. Non-Contravention. The execution, delivery and performance
by the Company of this Agreement, and each agreement to be executed by the
Company in connection herewith, and the consummation by the Company of the
transactions contemplated hereby and thereby, do not and will not:
(a) contravene or conflict with any provision of the respective charters
or bylaws (or similar governing documents) of the Company or any of the Company
Subsidiaries;
(b) assuming compliance with the matters referred to in Section 3.5 and
assuming the requisite approval of the Company's stockholders of the
transactions contemplated by this Agreement, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company, any
Company Subsidiary, or, to the Company's knowledge, any Company Affiliated
Physician Group or any of their respective properties or assets, except where
such contravention, conflict or violation would not have a Material Adverse
Effect on the Company;
(c) conflict with or result in a breach or violation of, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or result in any third party having any right of termination,
amendment, acceleration or cancellation of, or loss of a material benefit under,
(i) any agreement, contract or other instrument binding upon the Company, any
Company Subsidiary or, to the Company's knowledge, any Company Affiliated
Physician Group or (ii) assuming compliance with the matters referred to in
Section 3.5, any
<PAGE>
material license, franchise, permit or other similar authorization held by the
Company, any Company Subsidiary or any Company Affiliated Physician Group, in
each case except where such conflict, breach, violation, default or result would
not have a Material Adverse Effect on the Company; or
(d) result in the creation or imposition of any Lien (as defined below)
that could have a Material Adverse Effect on the Company. For purposes of this
Agreement, the term "Lien" shall mean, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrances of any kind in respect
of such asset.
Section 3.7. Capitalization. The authorized capital stock of the Company
consists of 150,000,000 shares of Company Common Stock, 5,000,000 shares of
preferred stock (the "Company Preferred Stock") and, authorized out of the
Company Preferred Stock 500,000 shares of Series One Junior Preferred Stock (the
"Company Series One Junior Preferred Stock"). As of December 1, 1998, there
were outstanding:
(i) 51,412,851 shares of Company Common Stock (none of which shares
are in treasury) (including the corresponding number of rights (the
"Company Rights") to purchase shares of the Company Series One Junior
Preferred Stock pursuant to the Rights Agreement dated as of June 2, 1997
between the Company and Harris Trust and Savings Bank, as Rights Agent (the
"Company Rights Agreement");
(ii) no shares of Company Preferred Stock;
(iii) Company Options (as defined below) to purchase an aggregate of
3,689,635 shares of Company Common Stock; and
(iv) 787,259 shares of Company Common Stock deliverable at future
specified dates for no additional consideration, with the aggregate number
of shares deliverable each year set forth on the Company Disclosure
Schedule, provided such number of shares does not include the shares of
Company Common Stock deliverable for specified dollar amounts (in the
aggregate $10,800,650) as set forth in the Company Disclosure Schedule);
and
(v) a 6% subordinated convertible note due June 30, 2002 dated July
1, 1997 (the "6% Note") in the principal amount of $900,000, which after
June 1, 2000 and on or prior to June 30, 2002 (or thereafter if not paid at
maturity) may be converted into such number of shares of Company Common
Stock determined by dividing the conversion price of $13.50 (subject to
adjustment as set forth in the 6% Note (the "Conversion Price")) into the
principal amount of the 6% Note being converted. As of the date hereof, no
adjustment has been made to the Conversion Price.
The items in clauses (i) through (v) above are herein referred to collectively
as the "Company Securities". All outstanding shares of Company Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and free from any preemptive rights. Except (i) as set forth in
this Section 3.7, (ii) for changes since December 1, 1998 resulting from the
<PAGE>
exercise of options to purchase shares of Company Common Stock ("Company
Options") and from deliveries of shares described in clause (iv) above, there
are outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities issued by the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company and
(iii) no options or other rights to acquire from the Company, and no obligation
of the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or other voting securities of
the Company. There are no outstanding obligations of the Company or any Company
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
No holder of Company Securities has, as of the date hereof, any contractual
right to require the Company to file any registration statement under the
Securities Act or to include any such securities in any registration statement
proposed to be filed by the Company under the Securities Act.
Section 3.8. SEC Reports and Financial Statements. Each periodic report,
registration statement and definitive proxy statement filed by the Company with
the Securities and Exchange Commission ("SEC") since it has been required to do
so (as such documents since the time of their filing have been amended and each
document filed between the date hereof and the Effective Time, the "Company SEC
Reports"), which include all the documents (other than preliminary material)
that the Company was required to file with the SEC, as of their respective
dates, complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, applicable to such Company SEC
Reports. None of the Company SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except for such statements, if any, as
have been modified or superseded by subsequent filings prior to the date hereof.
All material agreements, contracts and other documents required to be filed as
exhibits to any of the Company SEC Reports have been filed. The financial
statements of the Company included in such reports comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the cases of the unaudited statements, as permitted by Form 10-Q
of the SEC) and fairly present (subject in the case of the unaudited statements,
to normal, recurring audit adjustments) in all material respects the
consolidated financial position of the Company and the Company Subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended. Neither the Company nor any of the Company
Subsidiaries has any liabilities or obligations, whether absolute, accrued,
fixed, contingent, liquidated, unliquidated or otherwise and whether due or to
become due, except (i) as and to the extent set forth on the audited
consolidated balance sheet of the Company and the Company Subsidiaries as of
December 31, 1997 (including the notes thereto) (the "Company Balance Sheet"),
(ii) as incurred in connection with the transactions contemplated, or as
provided, by this Agreement, (iii) as described in the Company SEC Reports (iv)
as incurred in the ordinary course of business and which would not, individually
or in the aggregate have a Material Adverse Effect on the Company or (v) as
would not, individually or in the aggregate, otherwise have a Material Adverse
Effect on the Company.
<PAGE>
Section 3.9. Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Reports filed prior to the date hereof, since December 31, 1997
the Company, the Company Subsidiaries and the Company Affiliated Physician
Groups have conducted their respective businesses only in the ordinary course,
consistent with past practice, and, with respect to the Company Affiliated
Physician Groups, to the Company's knowledge, there has not occurred or arisen
any event, individually or in the aggregate, having or that could reasonably be
expected to have a Material Adverse Effect on the Company.
Section 3.10. Disclosure Documents. None of the information supplied or
to be supplied by the Company for inclusion in (i) the joint proxy
statement/prospectus relating to the meetings of the Company's and Parent's
stockholders to be held in connection with the transactions contemplated hereby
(as the same may be amended or supplemented from time to time, the "Joint Proxy
Statement"), or (ii) the registration statement on Form S-4 or other appropriate
registration form to be filed with the SEC by Parent in connection with the
offer and issuance of Parent Common Stock in or as a result of the Merger (as
the same may be amended or supplemented from time to time, the "Registration
Statement") will, in the case of the Joint Proxy Statement, either at the time
of mailing thereof to stockholders of the Company or of Parent or at the time of
the meetings of such stockholders to be held in connection with the transactions
contemplated hereby, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading or will, in the case of the Registration Statement either
at the time the Registration Statement is filed with the SEC or at the time the
Registration Statement becomes effective under the Securities Act, 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.
The Joint Proxy Statement will comply as to form in all material respects with
the provisions of the Exchange Act, except that no representation or warranty is
made by the Company with respect to information supplied by Parent or Merger Sub
for inclusion therein.
Section 3.11. Litigation. There is no action, suit, proceeding, claim or
investigation pending, or to the knowledge of the Company, threatened against or
affecting the Company or any Company Subsidiary or any of their assets, and to
the knowledge of the Company there are no, and have not been any, facts,
conditions or incidents that are reasonably likely to result in any such action,
suit, proceeding, claim or investigation except for actions, suits, proceedings,
claims or investigations that would not, individually or in the aggregate, have
a Material Adverse Effect on the Company. In addition, there is no action,
suit, proceeding, claim or investigation pending, or to the knowledge of the
Company, threatened against or affecting any Company Affiliated Physician Group
or any of their assets that has or that individually or in the aggregate could
be reasonably expected to have a Material Adverse Effect on the Company.
Neither the Company, nor any Company Subsidiary nor any Company Affiliated
Physician Group is subject to or in default with respect to any writ, order,
judgment, injunction or decree that has or that, individually or in the
aggregate, would have a Material Adverse Effect on the Company.
<PAGE>
Section 3.12. Contracts.
All contracts, leases, agreements and arrangements, material to the
operation and business of the Company, to which the Company or any of the
Company Subsidiaries or any Company Affiliated Physician Group is a party are
legally valid and binding in accordance with their terms and in full force and
effect. The Company has complied and, to the knowledge of the Company, all
other parties to such contracts, leases, agreements and arrangements have
complied with the provisions of such contracts, leases, agreements and
arrangements, and to the knowledge of the Company, no party is in default
thereunder, and no event has occurred which, but for the passage of time or the
giving of notice or both, would constitute a default thereunder, except, in each
case, where the invalidity of the lease, contract, agreement or arrangement or
the default or breach thereunder or thereof would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
Section 3.13. Properties and Assets. The Company (including, as
applicable, the Company Subsidiaries) owns and has good and marketable title to
all of the real property and personal property included in the Company Balance
Sheet (except assets recorded under capital lease obligations and such property
as has been disposed of during the ordinary course of the Company's business
since the date of the Company Balance Sheet), free and clear of any liens,
claims, charges, exceptions or encumbrances, except for those, if any, which in
the aggregate are not material and which do not materially affect the continued
use of such property.
<PAGE>
Section 3.14. Taxes.
(a) The Company and the Company Subsidiaries (i) have filed (or the
Company had timely filed in their behalf) or will file or cause to be filed when
due (taking into account extensions) with the appropriate Federal, state, local,
foreign and other governmental agencies, all material tax returns, estimates,
reports and documents of a similar nature relating to taxes required to be filed
by it, and all such returns, estimates and reports are or will be at the time of
filing, true, complete and correct in all material respects, (ii) either paid
when due and payable or established adequate reserves or otherwise accrued on
the Company Balance Sheet all material Federal, state, local or foreign taxes,
levies, duties, licenses and registration fees and charges of any nature
whatsoever, and unemployment and social security taxes and income tax
withholding, including interest and penalties thereon ("Taxes"), and there are
no material taxes, interest, penalties, assessments or deficiencies claimed in
writing by any taxing authority and received by the Company that, in the
aggregate, would result in any Tax liability in excess of the amount of the
reserves or accruals, and (iii) have or will establish in accordance with its
normal accounting practices and procedures accruals and reserves that, in the
aggregate, are adequate for the payment of all material Taxes not yet due and
payable and attributable to any period preceding the Effective Time.
(b) Neither the Company nor any predecessor corporation, nor any of their
respective Subsidiaries, has executed or filed with the Internal Revenue Service
("IRS") or any other taxing authority any agreement or other document extending,
or having the effect of extending, the period of assessment or collection of any
material Taxes.
(c) Neither the Company nor any of the Company Subsidiaries is a party to
or is bound by (or will prior to the Effective Date become a party to or bound
by) any tax indemnity, tax sharing or tax allocation agreement or other similar
arrangement which includes a party other than the Company and the Company
Subsidiaries.
Section 3.15. Employee Benefit Plans; ERISA.
(a) Neither the Company nor any of the Company Subsidiaries is a party to
any oral or written (i) employment, severance, collective bargaining or
consulting agreement not terminable on 60 days' or less notice, (ii) agreement
with any current or former executive officer or other current or former key
employee of the Company or any Company Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Company Subsidiary of the nature of
any of the transactions contemplated by this Agreement, (B) providing any term
of employment or compensation guarantee extending for a period longer than six
months, or (C) providing severance benefits or other benefits after the
termination of employment of such executive officer or key employee regardless
of the reason for such termination of employment, (iii) agreement, plan or
arrangement under which any person may receive payments subject to the tax
imposed by Section 4999 of the Code, or (iv) agreement or plan, including,
without
<PAGE>
limitation, any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, the benefits of which would be increased, or
the vesting of benefits of which would be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The Company Disclosure Schedule contains a true
and correct description of the annual compensation, bonus plans and awards,
options, SAR's, deferred compensation and all other material benefits for each
of the executive officers of the Company.
(b) Neither the Company nor any corporation or other entity which under
Section 4001(b) of ERISA is under common control with the Company (a "Company
ERISA Affiliate") maintains any "Employee Pension Benefit Plan" ("Pension Plan")
or any "Employee Welfare Benefit Plan" ("Welfare Plan") as such terms are
defined in Sections 3(2) and 3(1) respectively of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), which is subject to ERISA. Each
Pension Plan and Welfare Plan of the Company and the Company ERISA Affiliates
has been maintained in all material respects in compliance with its terms and
all provisions of ERISA and the Code (including rules and regulations
thereunder) and other applicable laws. Neither the Company nor any Company
ERISA Affiliate is subject to potential liability under Section 4069(a) of
ERISA.
(c) No Pension Plan or Welfare Plan of the Company or any Company ERISA
Affiliate is currently subject to an audit or other investigation by the IRS,
the Department of Labor, the Pension Benefit Guaranty Corporation or any other
Governmental Entity nor are any such plans subject to any lawsuits or legal
proceedings of any kind or to any material pending disputed claims by employees
or beneficiaries covered under any such plan or by any other parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in material liability to the Company or any
Company ERISA Affiliate has occurred with respect to any Pension Plan or Welfare
Plan. The Company has no knowledge of any breach of fiduciary responsibility
under Part 4 of Title I of ERISA which has resulted in or would result in any
material liability to the Company, any trustee, administrator or fiduciary of
any Pension Plan or Welfare Plan of the Company or any Company ERISA Affiliate.
(e) Neither the Company nor any Company ERISA Affiliate has maintained or
contributed to, or been obligated or required to contribute to, a "Multiemployer
Plan," as such term is defined in Section 4001(a)(3) of ERISA. Neither the
Company nor any Company ERISA Affiliate has either withdrawn, partially or
completely, or instituted steps to withdraw, partially or completely, from any
Multiemployer Plan nor has any event occurred which would enable a Multiemployer
Plan to give notice of and demand payment of any material withdrawal liability
with respect to the Company or any Company ERISA Affiliate.
(f) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company or any Company ERISA Affiliate that,
individually or collectively, could give rise to the payment of any material
amount that would not be deductible pursuant to the terms of Sections 162(m) or
280G of the Code.
<PAGE>
(g) The Company has delivered or made available to Parent full and
complete copies or descriptions of, and the Company Disclosure Schedule contains
a complete list of each Pension Plan, Welfare Plan and each other material
agreement, policy, plan or other arrangement, whether written or oral, express
or implied, fixed or contingent, to which the Company or any Company ERISA
Affiliate is a party or by which the Company or any Company ERISA Affiliate is
bound, which is or relates to a pension, option, bonus, deferred compensation,
retirement, stock purchase, profit-sharing, severance pay, health, welfare,
incentive, vacation, sick leave, medical disability, hospitalization, life or
other insurance or fringe benefit plan, policy or arrangement. Certain of the
employment agreements contain change in control provisions which will be
triggered as of the Effective Time, as set forth in the Company Disclosure
Schedule.
(h) The Company has delivered or made available to Parent, for each
Pension Plan which is intended to be "qualified" within the meaning of Section
401(a) of the Code, a copy of the most recent determination letter issued by the
IRS to the effect that each such Plan is so qualified and that each trust
created thereunder is tax exempt under Section 501 of the Code, and the Company
is unaware of any fact or circumstances that would jeopardize the qualified
status of each such Pension Plan or the tax exempt status of each trust created
thereunder.
Section 3.16. Accounts Receivable.
(a) All of the Company's accounts receivable as of the date of this
Agreement constitute, and as of the Effective Date will constitute, valid claims
which arose in the ordinary course of the business of the Company.
(b) Since the date of the Company Balance Sheet, the Company has not
changed any principle or practice with respect to the recordation of accounts
receivable or the calculation of reserves therefor, or any material collection,
discount or write-off policy or procedure, except as may have been required by
changes in generally accepted accounting principles.
(c) The Company (including the Company Subsidiaries and Company Affiliated
Providers) is in compliance with the terms and conditions of all third-party
payor arrangements relating to its accounts receivable, except to the extent
that such noncompliance would not have a Material Adverse Effect on the Company.
Without limiting the generality of the foregoing, each of the Company, the
Company Subsidiaries and, to the Company's knowledge, the Company Affiliated
Providers is in compliance with all Medicare and Medicaid and other third party
provider agreements, billing procedures and billing requirements except to the
extent that such noncompliance would not have a Material Adverse Effect on the
Company.
Section 3.17. Labor Matters. Neither the Company nor any of the Company
Subsidiaries nor any Company Affiliated Physician Group is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any such Company Subsidiary or any Company
Affiliated Physician Group, and,
<PAGE>
to the knowledge of the Company, there are no activities or proceedings of any
labor union or any such employees to organize any such employees.
Section 3.18. Compliance with Laws. Except for violations which do not
have and would not have, individually or in the aggregate, a Material Adverse
Effect on the Company, neither the Company nor any Company Subsidiary nor, to
the knowledge of the Company, any Company Affiliated Physician Group is in
violation or has received any notices, written or oral, of violations of
federal, state or local laws, regulations or ordinances relating to its business
and operations, including, without limitation, the Occupational Safety and
Health Act, the Americans with Disabilities Act, the applicable Medicare or
Medicaid statutes, and regulations, including the Anti-Fraud and Abuse
Amendments to the Medicare and Medicaid statutes and any applicable state or
federal physician self-referral laws, and no written notice of any pending
inspection or inquiry or of the violation of any such law, regulation or
ordinance has been received by the Company or any Company Subsidiary or, to the
knowledge of the Company, any Company Affiliated Physician Group.
Section 3.19. Finders' Fees. Except for Goldman, Sachs & Co. (the
"Company Financial Advisor") and the Company's legal counsel and accountants,
there is no investment banker, broker, finder or other intermediary that has
been retained by or is authorized to act on behalf of the Company nor any of its
directors, officers or employees who is entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
Section 3.20. Opinion of Financial Advisor. The Company has received the
opinion of the Company Financial Advisor to the effect that, as of the date of
this Agreement, the Exchange Ratio is fair, from a financial point of view, to
the holders of Company Common Stock.
Section 3.21. Accounting Matters. Neither the Company nor, to its
knowledge, any of its Affiliates (as defined below) has taken or agreed to take
any action that would prevent Parent from accounting for the transactions to be
effected pursuant to Article I of this Agreement in accordance with the pooling-
of-interests method of accounting under the requirements of Opinion No. 16
"Business Combinations" of the Accounting Principles Board of the American
Institute of Certified Public Accountants, as amended by applicable
pronouncements by the Financial Accounting Standards Board ("APB No. 16").
"Affiliate" of a person shall mean any person directly or indirectly controlling
or controlled by or under common control with such person.
Section 3.22. Company Rights Plan. Under the terms of the Company Rights
Agreement, as amended as of the date hereof, the transactions contemplated by
this Agreement will not cause an Exercisability Date (as defined therein) to
occur or cause the rights issued pursuant to the Company Rights Agreement to
become exercisable.
<PAGE>
Section 3.23. Licenses; Approvals. The Company and each Company
Subsidiary and, to the knowledge of the Company, each Company Affiliated
Physician Group, as applicable, hold all licenses, permits, certificates of need
and other regulatory approvals required or necessary to be applied for or
obtained in connection with their business as presently conducted or as proposed
to be conducted except where the failure to obtain or hold such license, permit,
certificate of need or regulatory approval would not have a Material Adverse
Effect on the Company. All such licenses, permits, certificates of need and
other regulatory approvals related to the business, operations and facilities of
the Company and each Company Subsidiary and, to the knowledge of the Company,
each Company Affiliated Physician Group are in full force and effect, except
where any failure of such license, certificate of need or regulatory approval to
be in full force and effect would not have a Material Adverse Effect on the
Company. Any and all past litigation concerning such licenses, certificates of
need and regulatory approvals, including all claims and causes of action raised
therein, has been finally adjudicated. No such license, certificate of need or
regulatory approval has been revoked, conditioned (except as may be customary),
limited or restricted, and no action (equitable, legal or administrative),
arbitration or other process is pending or, to the best knowledge of the
Company, threatened which in any way challenges the validity of or seeks to
revoke, condition or restrict any such license, permit, certificate of need, or
regulatory approval. Where applicable, the Company, the Company Subsidiaries
and, to the knowledge of the Company, the Company Affiliated Physician Groups
have current valid provider contracts with both Medicare and Medicaid. The
Company is not aware of any reasons why the Company, the Company Subsidiaries or
any of the Company Affiliated Physician Groups would be prevented from
participating in Medicare and Medicaid.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent has delivered to the Company on or prior to the execution hereof a
disclosure schedule (the "Parent Disclosure Schedule") that contains appropriate
references to identify the representations and warranties herein to which the
information in such Parent Disclosure Schedule relates. The information in the
Parent Disclosure Schedule shall be deemed a part of Parent's representations
and warranties herein. Except as disclosed in the Parent's Disclosure Schedule,
Parent represents and warrants to the Company as set forth below:
Section 4.1. Corporate Existence and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all corporate power required to own or lease its properties and
to carry on its business as now conducted. Parent is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the nature of its activities makes such qualification necessary, except
where the failure to be so qualified or to be in good standing would not have a
Material Adverse Effect on Parent. Parent has delivered or made available to
the Company true and complete copies of the certificate of incorporation and
bylaws of Parent. Parent is not, and has not been within the two years
immediately preceding the date of this Agreement, a
<PAGE>
subsidiary or division of another corporation, nor has Parent within such time
owned, directly or indirectly, any shares of the Company Common Stock.
Section 4.2. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Sub of this Agreement, and each agreement to be
executed by Parent and Merger Sub in connection herewith, and the consummation
by Parent and Merger Sub of the transactions contemplated hereby and thereby,
are within Parent's and Merger Sub's corporate powers and have been duly
authorized by all necessary corporate action, except for the approval of this
Agreement and the transactions contemplated hereby (including the approval of
the Restated Certificate) by Parent's stockholders to the extent required by
applicable law and NMS rules and regulations. This Agreement and each agreement
to be executed by Parent or Merger Sub in connection herewith have been duly and
validly executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery hereof and thereof by each other party
hereto and thereto, constitute valid and binding agreements of Parent and Merger
Sub, enforceable against Parent and Merger Sub in accordance with their terms.
Section 4.3. Subsidiaries. Except for Merger Sub, Parent does not
directly or indirectly own any interest in any corporation, partnership, joint
venture or other business association or entity, foreign or domestic. (Such
corporations, partnerships, joint ventures or other business entities of which
Parent owns, directly or indirectly, greater than fifty percent of the shares of
capital stock or other equity interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to cast at least
a majority of the votes that may be cast by all shares or equity interest having
ordinary voting power for the election of directors or other governing body of
such entity are hereinafter referred to as the "Parent Subsidiaries.")
(a) Each Parent Subsidiary that is a corporation is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, except where the failure to be so would not
individually or in the aggregate have a Material Adverse Effect on Parent. Each
Parent Subsidiary that is a partnership or a limited liability company is duly
formed and validly existing under the laws of its jurisdiction of formation,
except where the failure to be so would not individually or in the aggregate
have a Material Adverse Effect on Parent.
(b) Each Parent Subsidiary has the corporate power or the partnership
power, as the case may be, to carry on its business as it is now being conducted
or presently proposed to be conducted, except where the failure to be so would
not individually or in the aggregate have a Material Adverse Effect on Parent.
(c) Each Parent Subsidiary that is a corporation is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate
<PAGE>
have a Material Adverse Effect on Parent. Each Parent Subsidiary that is a
partnership is duly qualified as a foreign partnership authorized to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified would
not individually or in the aggregate have a Material Adverse Effect on Parent.
(d) All of the outstanding shares of capital stock of the Parent
Subsidiaries that are corporations are validly issued, fully paid and
nonassessable.
(e) All of the outstanding shares of capital stock of, or other ownership
interests in, each of the Parent Subsidiaries owned by Parent or a Parent
Subsidiary are owned by Parent or by a Parent Subsidiary free and clear of any
liens, claims, charges or encumbrances.
(f) There are not now, and at the Effective Time there will not be, any
voting trusts, standstill, stockholder or other agreements or understandings to
which Parent or any of the Parent Subsidiaries is a party or is bound with
respect to the voting of the capital stock of Parent or any of the Parent
Subsidiaries.
Section 4.4. Affiliated Physician Groups. The Parent Disclosure Schedule
sets forth each physician group or entity with which Parent or any of the Parent
Subsidiaries is affiliated, either through a management or service agreement or
other arrangement (the "Parent Affiliated Physician Groups"). The Parent
Disclosure Schedule also sets forth the number of physicians employed or
affiliated with each such Parent Affiliated Physician Group as of December 1,
1998 (collectively, the "Parent Affiliated Physicians" and, together with the
Parent Affiliated Physician Groups, the "Parent Affiliated Providers"). Parent
has made available to the Company true and correct copies of the material
documents (i) by which each Parent Affiliated Physician Group became affiliated
with Parent or one of the Parent Subsidiaries, (ii) that currently define and
set forth the material terms of affiliation between Parent or one of the Parent
Subsidiaries and each Parent Affiliated Physician Group.
Section 4.5. Governmental Authorization. The execution, delivery and
performance by Parent and Merger Sub of this Agreement, and each agreement to be
executed by Parent or Merger Sub pursuant hereto, and the consummation by Parent
and Merger Sub of the transactions contemplated hereby and thereby, require no
action by or in respect of, or filing with, any Governmental Entity, other than:
(a) the filing of the Articles of Merger in accordance with the TBCA;
(b) compliance with any applicable requirements of the HSR Act;
(c) compliance with any applicable requirements of the Exchange Act;
(d) compliance with any applicable requirements of the Securities Act;
<PAGE>
(e) compliance with any applicable foreign or state securities or "blue
sky" laws, rules or regulations;
(f) the filing of the Restated Certificate in accordance with the DGCL;
and
(g) such other filings or registrations with, or authorizations, consents
or approvals of, Governmental Entities, the failure of which to make or obtain
(i) would not reasonably be expected to have a Material Adverse Effect on Parent
and Merger Sub or (ii) would not materially and adversely affect the ability of
Parent and Merger Sub to consummate the transactions contemplated hereby and
operate their respective businesses as heretofore operated.
Section 4.6. Non-Contravention. The execution, delivery and performance
by Parent and Merger Sub of this Agreement, and each agreement to be executed by
Parent or Merger Sub in connection herewith, and the consummation by Parent and
Merger Sub of the transactions contemplated hereby and thereby, do not and will
not:
(a) assuming compliance with the matters referred to in Section 4.5,
contravene or conflict with any provision of the respective charters or bylaws
(or similar governing documents) of Parent or any of the Parent Subsidiaries;
(b) assuming compliance with the matters referred to in Section 4.5 and
assuming the requisite approval of Parent's stockholders of the transactions
contemplated by this Agreement, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Parent, any Parent Subsidiary, or, to
Parent's knowledge, any Parent Affiliated Physician Group or any of their
respective properties or assets, except where such contravention, conflict or
violation would not have a Material Adverse Effect on Parent;
(c) conflict with or result in a breach or violation of, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or result in any third party having any right of termination,
amendment, acceleration or cancellation of, or loss of a material benefit under,
(i) any material agreement, contract or other instrument binding upon Parent,
any Parent Subsidiary or, to the Parent's knowledge, any Parent Affiliated
Physician Group or (ii) assuming compliance with the matters referred to in
Section 4.5, any material license, franchise, permit or other similar
authorization held by Parent, any Parent Subsidiary or any Parent Affiliated
Physician Group, in each case except where such conflict, breach, violation,
default or result would not have a Material Adverse Effect on Parent; or
(d) result in the creation or imposition of any Lien that could have a
Material Adverse Effect on Parent.
Section 4.7. Capitalization. The authorized capital stock of Parent
consists of 80,000,000 shares of Parent Common Stock, and 1,000,000 shares of
preferred stock ("Parent Preferred Stock"). As of December 1, 1998, there were
outstanding:
<PAGE>
(i) 33,220,950 shares of Parent Common Stock (excluding 757,672
shares held in treasury);
(ii) no shares of Parent Preferred Stock;
(iii) Parent Options (as defined below) to purchase an aggregate of
6,008,834 shares of Parent Common Stock; and
(iv) 15,923,263 shares of Parent Common Stock deliverable at future
specified dates for no additional consideration, with the aggregate number
of shares deliverable each year set forth on the Parent Disclosure
Schedule.
The items in clauses (i) through (iv) above are herein referred to collectively
as the "Parent Securities". All outstanding shares of Parent Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable and
free from any preemptive rights. Except (i) as set forth in this Section 4.7,
(ii) for changes since December 1, 1998 resulting from the exercise of options
to purchase shares of Parent Common Stock ("Parent Options") and from deliveries
of shares described in (iv) above, there are outstanding (i) no shares of
capital stock or other voting securities of Parent, (ii) no securities issued by
Parent convertible into or exchangeable for shares of capital stock or voting
securities of Parent and (iii) no options or other rights to acquire from
Parent, and no obligation of Parent to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
other voting securities of Parent. There are no outstanding obligations of
Parent or any of the Parent Subsidiaries to repurchase, redeem or otherwise
acquire any Parent Securities. No holder of Parent Securities has, as of the
date hereof, any contractual right to require Parent to file any registration
statement under the Securities Act or to include any such securities in any
registration statement proposed to be filed by Parent under the Securities Act.
Section 4.8. Organization of Merger Sub. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, par value $.01 per share,
all of which are outstanding. All the issued and outstanding capital stock of
Merger Sub is owned by Parent. Merger Sub has not conducted any business prior
to the date hereof and has no assets, liabilities or obligations of any nature
other than those incident to its formation and pursuant to this Agreement.
Section 4.9. No Prior Activities. As of the date hereof and the Effective
Time, except for obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by this
Agreement and any other agreements or arrangements contemplated by this
Agreement, Merger Sub has not and will not have incurred any obligations or
liabilities or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
Section 4.10. SEC Reports and Financial Statements. Each periodic report,
registration statement and definitive proxy statement filed by Parent with the
SEC since it has been required to do so (as such documents since the time of
their filing have been amended and
<PAGE>
each document filed between the date hereof and the Effective Time, the "Parent
SEC Reports"), which include all the documents (other than preliminary material)
that Parent was required to file with the SEC, as of their respective dates,
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, applicable to such Parent SEC Reports.
None of the Parent SEC Reports contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except for such statements, if any, as have been
modified or superseded by subsequent filings prior to the date hereof. All
material agreements, contracts and other documents required to be filed as
exhibits to any of the Parent SEC Reports have been filed. The financial
statements of Parent included in such reports comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the cases of the unaudited statements, as permitted by Form 10-Q
of the SEC) and fairly present (subject in the case of the unaudited statements,
to normal, recurring audit adjustments) in all material respects the
consolidated financial position of Parent and the Parent Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Neither Parent nor any of the Parent Subsidiaries
has any liabilities or obligations, whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due, except (i) as and to the extent set forth on the audited consolidated
balance sheet of Parent and the Parent Subsidiaries as of December 31, 1997
(including the notes thereto) (the "Parent Balance Sheet"), (ii) as incurred in
connection with the transactions contemplated, or as provided, by this
Agreement, (iii) as incurred in the ordinary course of business and which would
not, individually or in the aggregate, have a Material Adverse Effect on Parent,
(iv) as described in the Parent SEC Reports or (v) as would not, individually or
in the aggregate, otherwise have a Material Adverse Effect on Parent.
Section 4.11. Absence of Certain Changes or Events. Except as disclosed
in the Parent SEC Reports filed prior to the date hereof, since December 31,
1997, Parent, the Parent Subsidiaries and the Parent Affiliated Physician Groups
have conducted their respective businesses only in the ordinary course,
consistent with past practice, and, with respect to the Parent Affiliated
Physician Groups, to the Parent's knowledge, there has not occurred or arisen
any event, individually or in the aggregate, having or that could reasonably be
expected to have a Material Adverse Effect on Parent.
Section 4.12. Disclosure Documents. None of the information supplied or
to be supplied by Parent for inclusion in the (i) Joint Proxy Statement or (ii)
Registration Statement will, in the case of the Joint Proxy Statement, either at
the time of mailing thereof to stockholders of Parent or the Company or at the
time of the meetings of such stockholders to be held in connection with the
transactions contemplated hereby, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading or will, in the case of the
Registration Statement either at the time the
<PAGE>
Registration Statement is filed with the SEC or at the time the Registration
Statement becomes effective under the Securities Act, 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. The
Joint Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the Registration Statement will comply as to
form in all material respects with the provisions of the Securities Act, except
that no representation or warranty is made in either case by Parent with respect
to information supplied by the Company for inclusion therein.
Section 4.13. Litigation. There is no action, suit, proceeding, claim or
investigation pending, or to the knowledge of Parent, threatened against or
affecting Parent or any Parent Subsidiary or any of their assets, and to the
knowledge of Parent there are no, and have not been any, facts, conditions or
incidents that are reasonably likely to result in any such action, suit,
proceeding, claim or investigation, except for actions, suits, proceedings,
claims or investigations that would not have a Material Adverse Effect on
Parent. In addition, there is no action, suit, proceeding, claim or
investigation pending, or to the knowledge of Parent, threatened against or
affecting any Parent Affiliated Physician Group or any of their assets that has
or that individually or in the aggregate could be reasonably expected to have a
Material Adverse Effect on Parent. Neither Parent, nor any Parent Subsidiary
nor any Parent Affiliated Physician Group is subject to or in default with
respect to any writ, order, judgment, injunction or decree that has or that,
individually or in the aggregate, would have a Material Adverse Effect on
Parent.
Section 4.14. Contracts.
All contracts, leases, agreements and arrangements, material to the
operation and business of Parent, to which Parent or any of the Parent
Subsidiaries or any Parent Affiliated Physician Group is a party are legally
valid and binding in accordance with their terms and in full force and effect.
Parent has complied and, to the knowledge of Parent, all other parties to such
contracts, leases, agreements and arrangements have complied with the provisions
of such contracts, leases, agreements and arrangements, and to the knowledge of
Parent, no party is in default thereunder, and no event has occurred which, but
for the passage of time or the giving of notice or both, would constitute a
default thereunder, except, in each case, where the invalidity of the lease,
contract, agreement or arrangement or the default or breach thereunder or
thereof would not, individually or in the aggregate, have a Material Adverse
Effect on Parent.
Section 4.15. Properties and Assets. Parent (including, as applicable,
the Parent Subsidiaries) owns and has good and marketable title to all of the
real property and personal property included in the Parent Balance Sheet (except
assets recorded under capital lease obligations and such property as has been
disposed of during the ordinary course of the Parent's business since the date
of the Parent Balance Sheet), free and clear of any liens, claims, charges,
exceptions or encumbrances, except for those, if any, which in the aggregate are
not material and which do not materially affect continued use of such property.
<PAGE>
Section 4.16. Taxes.
(a) Parent and the Parent Subsidiaries (i) have filed (or Parent had
timely filed in their behalf) or will file or cause to be filed when due (taking
into account extensions) with the appropriate Federal, state, local, foreign and
other governmental agencies, all material tax returns, estimates, reports and
documents of a similar nature relating to taxes required to be filed by it, and
all such returns, estimates and reports are or will be at the time of filing,
true, complete and correct in all material respects, (ii) either paid when due
and payable or established adequate reserves or otherwise accrued on the Parent
Balance Sheet all material Taxes, and there are no material taxes, interest,
penalties, assessments or deficiencies claimed in writing by any taxing
authority and received by Parent that, in the aggregate, would result in any Tax
liability in excess of the amount of the reserves or accruals, and (iii) have or
will establish in accordance with its normal accounting practices and procedures
accruals and reserves that, in the aggregate, are adequate for the payment of
all material Taxes not yet due and payable and attributable to any period
preceding the Effective Time.
(b) Neither Parent nor any predecessor corporation, nor any of their
respective Subsidiaries, has executed or filed with the IRS or any other taxing
authority any agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any material Taxes.
(c) Neither Parent nor any of the Parent Subsidiaries is a party to or is
bound by (or will prior to the Effective Date become a party to or bound by) any
tax indemnity, tax sharing or tax allocation agreement or other similar
arrangement which includes a party other than Parent and the Parent
Subsidiaries.
Section 4.17. Employee Benefit Plans; ERISA.
(a) Neither Parent nor any of the Parent Subsidiaries is a party to any
oral or written (i) employment severance, collective bargaining or consulting
agreement not terminable on 60 days' or less notice, (ii) agreement with any
current or former executive officer or other current or former key employee of
Parent or any Parent Subsidiary (A) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving Parent or any Parent Subsidiary of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee extending for a period longer than six
months, or (C) providing severance benefits or other benefits after the
termination of employment of such executive officer or key employee regardless
of the reason for such termination of employment, (iii) agreement, plan or
arrangement under which any person may receive payments subject to the tax
imposed by Section 4999 of the Code, or (iv) agreement or plan, including,
without limitation, any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, the benefits of which would be
increased,
<PAGE>
or the vesting of benefits of which would be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The Parent Disclosure Schedule contains a true
and correct description of the annual compensation, bonus plans and awards,
options, SAR's, deferred compensation and all other material benefits for each
of the executive officers of Parent.
(b) Neither Parent nor any corporation or other entity which under Section
4001(b) of ERISA is under common control with Parent (a "Parent ERISA
Affiliate") maintains any Pension Plan or any Welfare Plan that is subject to
ERISA. Each Pension Plan and Welfare Plan of Parent and the Parent ERISA
Affiliates has been maintained in all material respects in compliance with its
terms and all provisions of ERISA and the Code (including rules and regulations
thereunder) and other applicable laws. Neither Parent nor any Parent ERISA
Affiliate is subject to potential liability under Section 4069(a) of ERISA.
(c) No Pension Plan or Welfare Plan of Parent or any Parent ERISA
Affiliate is currently subject to an audit or other investigation by the IRS,
the Department of Labor, the Pension Benefit Guaranty Corporation or any other
Governmental Entity nor are any such plans subject to any lawsuits or legal
proceedings of any kind or to any material pending disputed claims by employees
or beneficiaries covered under any such plan or by any other parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in material liability to Parent or any
Parent ERISA Affiliate has occurred with respect to any Pension Plan or Welfare
Plan. Parent has no knowledge of any breach of fiduciary responsibility under
Part 4 of Title I of ERISA which has resulted in or would result in any material
liability to Parent, any trustee, administrator or fiduciary of any Pension Plan
or Welfare Plan of Parent or any Parent ERISA Affiliate.
(e) Neither Parent nor any Parent ERISA Affiliate has maintained or
contributed to, or been obligated or required to contribute to, a "Multiemployer
Plan," as such term is defined in Section 4001(a)(3) of ERISA. Neither Parent
nor any Parent ERISA Affiliate has either withdrawn, partially or completely, or
instituted steps to withdraw, partially or completely, from any Multiemployer
Plan nor has any event occurred which would enable a Multiemployer Plan to give
notice of and demand payment of any material withdrawal liability with respect
to Parent or any Parent ERISA Affiliate.
(f) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Parent or any Parent ERISA Affiliate that,
individually or collectively, could give rise to the payment of any material
amount that would not be deductible pursuant to the terms of Sections 162(m) or
280G of the Code.
(g) Parent has delivered or made available to the Company full and
complete copies or descriptions of, and the Parent Disclosure Schedule contains
a complete list of each Pension Plan, Welfare Plan and each other material
agreement, policy, plan or other arrangement, whether written or oral, express
or implied, fixed or contingent, to which Parent or any Parent ERISA Affiliate
is a party or by which Parent or any Parent ERISA Affiliate is bound, which is
<PAGE>
or relates to a pension, option, bonus, deferred compensation, retirement, stock
purchase, profit-sharing, severance pay, health, welfare, incentive, vacation,
sick leave, medical disability, hospitalization, life or other insurance or
fringe benefit plan, policy or arrangement. Certain of the employment
agreements contain change in control provisions which will be triggered as of
the Effective Time, as set forth in the Parent Disclosure Schedule.
(h) Parent has delivered or made available to the Company, for each
Pension Plan which is intended to be "qualified" within the meaning of Section
401(a) of the Code, a copy of the most recent determination letter issued by the
IRS to the effect that each such Plan is so qualified and that each trust
created thereunder is tax exempt under Section 501 of the Code, and Parent is
unaware of any fact or circumstances that would jeopardize the qualified status
of each such Pension Plan or the tax exempt status of each trust created
thereunder.
Section 4.18. Accounts Receivable.
(a) All of Parent's accounts receivable as of the date of this Agreement
constitute, and as of the Effective Date will constitute, valid claims which
arose in the ordinary course of the business of Parent.
(b) Since the date of the Parent Balance Sheet, Parent has not changed any
principle or practice with respect to the recordation of accounts receivable or
the calculation of reserves therefor, or any material collection, discount or
write-off policy or procedure, except as may have been required by changes in
generally accepted accounting principles.
(c) Parent (including the Parent Subsidiaries and Parent Affiliated
Providers) is in compliance with the terms and conditions of all third-party
payor arrangements relating to its accounts receivable, except to the extent
that such noncompliance would not have a Material Adverse Effect on Parent.
Without limiting the generality of the foregoing, Parent and each of the Parent
Subsidiaries and, to the Parent's knowledge, each Parent Affiliated Physician
Group is in compliance with all Medicare and Medicaid and other third party
provider agreements, billing procedures and billing requirements, except to the
extent that such noncompliance would not a have a Material Adverse Effect on
Parent.
Section 4.19. Labor Matters. Neither Parent nor any of the Parent
Subsidiaries nor any Parent Affiliated Physician Group is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by Parent or any such Parent Subsidiary or any Parent
Affiliated Physician Group, and, to the knowledge of Parent, there are no
activities or proceedings of any labor union or any such employees to organize
any such employees.
Section 4.20. Compliance with Laws. Except for violations which do not
have and would not have, individually or in the aggregate, a Material Adverse
Effect on Parent, neither Parent nor any Parent Subsidiary nor, to the knowledge
of Parent, any Parent Affiliated Physician Group is in violation or has received
any notices, written or oral, of violations of any
<PAGE>
federal, state or local laws, regulations or ordinances relating to its business
and operations, including, without limitation, the Occupational Safety and
Health Act, the Americans with Disabilities Act, the applicable Medicare or
Medicaid statutes, and regulations, including the Anti-Fraud and Abuse
Amendments to the Medicare and Medicaid statutes and any applicable state or
federal physician self-referral laws, and no written notice of any pending
inspection or inquiry or of the violation of any such law, regulation or
ordinance has been received by Parent or any Parent Subsidiary or, to the
knowledge of Parent, any Parent Affiliated Physician Group.
Section 4.21. Finders' Fees. Except for BT Alex. Brown Incorporated (the
"Parent Financial Advisor") and the Parent's legal counsel and accountants,
there is no investment banker, broker, finder or other intermediary that has
been retained by or is authorized to act on behalf of Parent nor any of its
directors, officers or employees who is entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
Section 4.22. Opinion of Financial Advisor. Parent has received the
opinion of the Parent Financial Advisor to the effect that, as of the date of
this Agreement, the Exchange Ratio is fair, from a financial point of view, to
the holders of the Parent Common Stock.
Section 4.23. Accounting Matters. Neither Parent nor, to its knowledge,
any of its Affiliates has taken or agreed to take any action that would prevent
the Parent from accounting for the transactions to be effected pursuant to
Article I of this Agreement in accordance with the pooling-of-interests method
of accounting under the requirements of APB No. 16.
Section 4.24. Parent Rights Plan. Under the terms of the Parent Rights
Agreement, as amended as of the date hereof, the transactions contemplated by
this Agreement will not cause a Distribution Date (as defined therein) to occur
or cause the rights issued pursuant to the Parent Rights Agreement to become
exercisable.
Section 4.25. Licenses; Approvals. Parent and each Parent Subsidiary and,
to the knowledge of Parent, each Parent Affiliated Physician Group, as
applicable, hold all licenses, permits, certificates of need and other
regulatory approvals required or necessary to be applied for or obtained in
connection with their business as presently conducted or as proposed to be
conducted except where the failure to obtain or hold such license, permit,
certificate of need or regulatory
<PAGE>
approval would not have a Material Adverse Effect on Parent. All such licenses,
permits, certificates of need and other regulatory approvals related to the
business, operations and facilities of Parent and each Parent Subsidiary and, to
the knowledge of Parent, each Parent Affiliated Physician Group are in full
force and effect, except where any failure of such license, certificate of need
or regulatory approval to be in full force and effect would not have a Material
Adverse Effect on Parent. Any and all past litigation concerning such licenses,
certificates of need and regulatory approvals, including all claims and causes
of action raised therein, has been finally adjudicated. No such license,
certificate of need or regulatory approval has been revoked, conditioned (except
as may be customary), limited or restricted, and no action (equitable, legal or
administrative), arbitration or other process is pending or, to the best
knowledge of Parent, threatened which in any way challenges the validity of or
seeks to revoke, condition or restrict any such license, permit, certificate of
need, or regulatory approval. Where applicable, Parent, the Parent Subsidiaries
and, to the knowledge of Parent, the Parent Affiliated Physician Groups have
current valid provider contracts with both Medicare and Medicaid. Parent is not
aware of any reasons why Parent, the Parent Subsidiaries or any of the Parent
Affiliated Physician Groups would be prevented from participating in Medicare
and Medicaid.
ARTICLE V.
COVENANTS OF THE COMPANY
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Section 9.1
hereof, the Company agrees that:
Section 5.1. Conduct of Business of the Company Pending the Effective
Time. Except as expressly permitted or contemplated by this Agreement, or by
the Company Disclosure Schedule, the Company shall, and shall cause each of the
Company Subsidiaries to, conduct their operations in the ordinary and usual
course of business consistent with past practice and use its reasonable efforts
to preserve intact their respective business organizations' goodwill, keep
available the services of their respective present officers and key employees,
and preserve the goodwill and business relationships with those having business
relationships with them. Without limiting the generality of the foregoing, and
except as otherwise permitted by this Section 5.1 or the other terms of this
Agreement or as specifically contemplated by the Company Disclosure Schedule,
prior to the Effective Time, without the consent of Parent, which consent shall
not be unreasonably withheld, the Company will not, and will cause each of the
Company Subsidiaries not to:
(a) amend or propose to amend their respective organizational documents;
or split, combine or reclassify their outstanding capital stock or declare, set
aside or pay any dividend or distribution in respect of any 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, except for
dividends and distributions paid by Company Subsidiaries to other Company
Subsidiaries or to the Company;
(b) (i) issue, sell, pledge or dispose of, or agree to, authorize or
propose the issuance, sale, pledge or disposition of, any additional shares of,
or any options, warrants or rights of any kind to acquire any shares of, their
capital stock of any class, any debt or equity securities convertible into or
exchangeable for such capital stock or any other equity related right (including
any phantom stock or SAR rights), other than (x) any such issuance pursuant to
options, warrants, rights, agreements or convertible securities outstanding as
of the date hereof in accordance with their terms, (y) any issuance in
connection with the acquisition of the equity or assets of a business or the
affiliation with any physician or physician group contemplated by
<PAGE>
subsection (ii) below, provided that any such issuance does not represent more
than 40% of the total consideration paid in connection with such acquisition or
affiliation or (z) any issuance of options to purchase common stock pursuant to
existing employee benefit plans of the Company consistent with past practices,
which issuances under the foregoing (y) and (z) in the aggregate do not exceed
4,500,000 shares; (ii) acquire or agree to acquire, or affiliate or agree to
affiliate with, 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 (whether through a management agreement or otherwise), any business or
any corporation, partnership, association, physician group or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets in each case which are material, individually or in the aggregate, to the
Company and the Company Subsidiaries taken as a whole; provided, however, that
the foregoing shall not restrict the Company or any Company Subsidiary from
entering into any such acquisition transaction or affiliation transaction in
which the aggregate value of the consideration paid therein shall be less than
$50 million provided that the aggregate value of all acquisition and affiliation
transactions entered into by the Company and Company Subsidiaries pursuant to
the preceding proviso shall not exceed $150 million; (iii) sell (including by
sale-leaseback), lease, pledge, dispose of or encumber any assets or interests
therein, which are material, individually or in the aggregate, to the Company
and the Company Subsidiaries taken as a whole, other than in the ordinary course
of business and consistent with past practice; (iv) incur or become contingently
liable with respect to any material indebtedness for borrowed money or guarantee
any such indebtedness or issue any debt securities or otherwise incur any
material obligation or liability (absolute or contingent) other than
indebtedness in the ordinary course of business and consistent with past
practice or in connection with those acquisition or affiliation transactions
contemplated by subsection (ii) above; (v) redeem, purchase, acquire or offer to
purchase or acquire any (x) shares of its capital stock or (y) long-term debt
other than as required by governing instruments relating thereto; or (vi) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(c) enter into or amend any employment, severance, special pay arrangement
with respect to termination of employment or other arrangements or agreements
with any directors, officers or key employees except for (i) normal or budgeted
salary increases, merit bonuses and annual bonuses, (ii) arrangements in
connection with employee transfers, (iii) agreements with new employees, in the
case of (i), (ii), or (iii), in the ordinary course of business consistent with
past practice or (iv) agreements to pay bonuses, not to exceed $1,500,000 in the
aggregate, to key employees for the purpose of retaining such employees through
the Effective Date;
(d) adopt, enter into or amend any, or become obligated under any new
bonus, profit sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan, agreement,
trust, fund or arrangement for the benefit or welfare of any employee or
retiree, except in the ordinary course of business consistent with past practice
or as required to comply with changes in applicable law occurring after the date
hereof;
(e) make any commitment or enter into any material contract or agreement
providing for expenditures by the Company in excess of $200,000, except in the
ordinary course of business consistent with past practice;
<PAGE>
(f) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any Company
Subsidiary;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(h) revalue any of its assets, including, without limitation, writing down
the value of its inventory or writing off notes or accounts receivable, other
than in the ordinary course of business;
(i) make any material tax election or settle or compromise any material
income tax liability;
(j) pay, or agree to pay, in excess of $100,000 in connection with the
settlement or compromise of any pending or threatened suit, action or claim;
(k) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) in excess
of $100,000 other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the financial statements (or the notes thereto) of the Company
incurred in the ordinary course of business consistent with past practice;
(l) except in connection with the exercise of its fiduciary duties by the
Board of Directors of the Company as set forth in Section 7.3, waive, redeem,
amend or allow to lapse any material term or condition of the Company Rights
Agreement or any confidentiality or "standstill" agreement to which the Company
or any Company Subsidiary is a party;
(m) take any action or fail to take any action that it knows would
jeopardize qualification of the merger as a reorganization within the meaning of
Section 368 of the Code; or
(n) take or agree to take any of the foregoing actions or any action that
is reasonably likely to result in any of its representations and warranties set
forth in this Agreement becoming untrue, or in any of the conditions to the
Merger set forth in Article VIII not being satisfied or adversely affect the
ability of Parent to account for the Merger as a pooling-of-interests.
Section 5.2. Access to Financial and Operational Information. Subject to
compliance with applicable law, upon reasonable notice, the Company will, and
will cause each of the Company Subsidiaries and will use its reasonable efforts
to cause each Company Affiliated Physician Group to, give Parent, its directors,
its counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties, books
and records of the Company, the Company Subsidiaries and Company Affiliated
Physician Groups; will furnish to Parent, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
as such persons may reasonably request; and will instruct and request the
Company's directors, officers, employees, counsel and financial advisors to
cooperate with Parent in its investigation of the business of
<PAGE>
the Company, the Company Subsidiaries and Company Affiliated Physician Groups
and in the planning for the combination of the businesses of the Company and
Parent following the consummation of the Merger. All information obtained
pursuant to this Section 5.2 shall be governed by the Confidentiality Agreement
dated March 24, 1998 between Parent and the Company (the "Confidentiality
Agreement").
Section 5.3. Notices of Certain Events. The Company shall, upon obtaining
knowledge of any of the following, promptly notify Parent of:
(a) any material notice or other material communication from any
Governmental Entity in connection with the Merger; and
(b) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against the Company or any of the Company
Subsidiaries which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.11 or which relate to the
consummation of the Merger.
Section 5.4. Letter of Company's Accountants. The Company shall use all
reasonable efforts to cause to be delivered to the Company a letter of Arthur
Andersen LLP, the Company's independent auditors, dated a date within two
business days before the date on which the Registration Statement shall become
effective and addressed to Parent, in form and substance reasonably satisfactory
to Parent and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
Section 5.5. Opinion of Financial Advisor. Subject to the exercise of its
fiduciary duties by the Board of Directors of the Company as set forth in
Section 7.3, the Company shall use all reasonable efforts to cause the Company
Financial Advisor to provide its opinion to the effect that, as of a date no
earlier than three business days prior to the date that the Joint Proxy
Statement is mailed to stockholders of Parent and the Company, the Exchange
Ratio is fair, from a financial point of view, to the holders of Company Common
Stock, and shall include such updated opinion in the Joint Proxy Statement.
ARTICLE VI.
COVENANTS OF PARENT
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Section 9.1
hereof, Parent agrees that:
Section 6.1. Conduct of Business of Parent Pending the Effective Time.
Except as expressly permitted or contemplated by this Agreement or by the Parent
Disclosure Schedule,
<PAGE>
Parent shall, and shall cause each of the Parent Subsidiaries to, conduct their
operations in the ordinary and usual course of business consistent with past
practice and use its reasonable efforts to preserve intact their respective
business organizations' goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with those having business relationships with them.
Without limiting the generality of the foregoing, and except as otherwise
permitted by this Section 6.1 or the other terms of this Agreement or as
specifically contemplated by the Parent Disclosure Schedule, prior to the
Effective Time, without the consent of the Company, which consent shall not be
unreasonably withheld, Parent will not, and will cause each of the Parent
Subsidiaries not to:
(a) amend or propose to amend their respective organizational documents;
or split, combine or reclassify their outstanding capital stock or declare, set
aside or pay any dividend or distribution in respect of any 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, except for
dividends and distributions paid by the Parent Subsidiaries to other Parent
Subsidiaries or to Parent;
(b) (i) issue, sell, pledge or dispose of, or agree to, authorize or
propose the issuance, sale, pledge or disposition of, any additional shares of,
or any options, warrants or rights of any kind to acquire any shares of, their
capital stock of any class, any debt or equity securities convertible into or
exchangeable for such capital stock or any other equity related right (including
any phantom stock or SAR rights), other than (x) any such issuance pursuant to
options, warrants, rights, agreements or convertible securities outstanding as
of the date hereof in accordance with their terms, (y) any issuance in
connection with the acquisition of the equity or assets of a business or the
affiliation with any physician or physician group contemplated by subsection
(ii) below, provided that any such issuance does not represent more than 40% of
the total consideration paid in connection with such acquisition or affiliation
or (z) any issuance of options to purchase common stock pursuant to existing
employee benefit plans of Parent consistent with past practices, which issuances
under the foregoing (y) and (z) in the aggregate do not exceed 4,500,000 shares;
(ii) acquire or agree to acquire, or affiliate or agree to affiliate with, 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 (whether
through a management agreement or otherwise), any business or any corporation,
partnership, association, physician group or other business organization or
division thereof or otherwise acquire or agree to acquire any assets in each
case which are material, individually or in the aggregate, to the Parent and the
Parent Subsidiaries taken as a whole; provided, however, that the foregoing
shall not restrict the Parent or any Parent Subsidiary from entering into any
such acquisition transaction or affiliation transaction in which the aggregate
value of the consideration paid therein shall be less than $50 million provided
that the aggregate value of all acquisition and affiliation transactions entered
into by Parent and the Parent Subsidiaries pursuant to the preceding proviso
shall not exceed $150 million; (iii) sell (including by sale-leaseback), lease,
pledge, dispose of or encumber any assets or interests therein, which are
material, individually or in the aggregate, to Parent and the Parent
Subsidiaries taken as a whole, other than in the ordinary course of business and
consistent with past practice; (iv) incur or become contingently liable with
respect to any material indebtedness for borrowed money or guarantee any such
indebtedness or issue any debt
<PAGE>
securities or otherwise incur any material obligation or liability (absolute or
contingent) other than indebtedness in the ordinary course of business and
consistent with past practice or in connection with those acquisition or
affiliation transactions contemplated by subsection (ii) above; (v) redeem,
purchase, acquire or offer to purchase or acquire any (x) shares of its capital
stock or (y) long-term debt other than as required by governing instruments
relating thereto; or (vi) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(c) enter into or amend any employment, severance, special pay arrangement
with respect to termination or employment or other arrangements or agreements
with any directors, officers or key employees, except for (i) normal or budgeted
salary increases, merit bonuses and annual bonuses; (ii) arrangements in
connection with employee transfers, (iii) agreements with new employees, in the
case of (i), (ii) or (iii), in the ordinary course of business consistent with
past practice or (iv) agreements to pay bonuses, not to exceed $1,000,000 in the
aggregate, to key employees for the purpose of retaining such employees through
the Effective Date;
(d) adopt, enter into or amend any, or become obligated under any new
bonus, profit sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan, agreement,
trust, fund or arrangement for the benefit or welfare of any employee or
retiree, except in the ordinary course of business consistent with past practice
or as required to comply with changes in applicable law occurring after the date
hereof;
(e) make any commitment or enter into any material contract or agreement
providing for expenditures by Parent in excess of $200,000, except in the
ordinary course of business consistent with past practice;
(f) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any Parent Subsidiary;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(h) revalue any of its assets, including, without limitation, writing down
the value of its inventory or writing off notes or accounts receivable, other
than in the ordinary course of business;
(i) make any material tax election or settle or compromise any material
income tax liability;
(j) pay, or agree to pay, in excess of $100,000 in connection with the
settlement or compromise of any pending or threatened suit, action or claim;
(k) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) in excess
of $100,000, other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved
<PAGE>
against in, or contemplated by, the financial statements (or the notes thereto)
of the Parent of incurred in the ordinary course of business consistent with
past practice;
(l) except in connection with the exercise of its fiduciary duties by the
Board of Directors of the Parent as set forth in Section 7.3, waive, redeem,
amend or allow to lapse any term or condition of the Parent Rights Agreement or
any material confidentiality or "standstill" agreement to which the Parent or
any Parent Subsidiary is a party;
(m) take any action or fail to take any action that it knows would
jeopardize qualification of the merger as a reorganization within the meaning of
Section 368 of the Code; or
(n) take or agree to take any of the foregoing actions or any action that
is reasonably likely to result in any of its representations and warranties set
forth in this Agreement becoming untrue, or in the any of the conditions to the
Merger set forth in Article VIII not being satisfied or adversely affect the
ability of Parent to account for the Merger as a pooling-of-interests.
Section 6.2. Access to Financial and Operational Information. Subject to
compliance with applicable law, upon reasonable notice, Parent will, and will
cause each of the Parent Subsidiaries and will use its reasonable efforts to
cause each Parent Affiliated Physician Group to, give the Company, its
directors, its counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to the offices,
properties, books and records of Parent, the Parent Subsidiaries and the Parent
Affiliated Physician Groups; will furnish to the Company, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data as such persons may reasonably request; and will instruct and
request Parent's directors, officers, employees, counsel and financial advisors
to cooperate with the Company in its investigation of the business of Parent,
the Parent Subsidiaries and the Parent Affiliated Physician Groups, and in the
planning for the combination of the businesses of the Company and Parent
following the consummation of the Merger. All information obtained pursuant to
this Section 6.2 shall be governed by the Confidentiality Agreement.
Section 6.3. Notices of Certain Events. Parent shall, upon obtaining
knowledge of any of the following, promptly notify the Company of:
(a) any material notice or other material communication from any
Governmental Entity in connection with the Merger; and
(b) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against Parent or any of its Subsidiaries
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 4.13 or which relate to the consummation
of the Merger.
Section 6.4. Letter of Parent's Accountants. The Parent shall use all
reasonable efforts to cause to be delivered to Parent a letter of
PricewaterhouseCoopers LLP the Parent's independent auditors, dated a date
within two business days before the date on which the
<PAGE>
Registration Statement shall become effective and addressed to the Company, in
form and substance reasonably satisfactory to the Company and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
Section 6.5. Opinion of Financial Advisor. Subject to the exercise of its
fiduciary duties by the Board of Directors of Parent as set forth in Section
7.3, Parent shall use all reasonable efforts to cause the Parent Financial
Advisor to provide its opinion to the effect that, as of a date no earlier than
three business days prior to the date that the Joint Proxy Statement is mailed
to stockholders of Parent and the Company, the Exchange Ratio is fair, from a
financial point of view, to the stockholders of Parent, and shall include such
updated opinion in the Joint Proxy Statement.
Section 6.6. Quotation on NMS. As soon as practicable following the date
hereof, Parent will prepare and submit to NMS a notification for listing
additional shares covering the shares of Parent Common Stock issuable in the
Merger and shall use its reasonable efforts to obtain, prior to the Effective
Time, approval for the listing of such shares of Parent Common Stock, subject,
if applicable, to official notice of issuance.
Section 6.7. Employment Offers. Effective as of the Effective Time,
Parent will offer to continue the employment of each of John T. Casey, Michael
N. Murdock and George P. McGinn on the following terms, which would be reflected
in amendments to the existing employment agreements of such persons: (i) such
person would be paid by Parent no more than $10,000 per month; (ii) any
severance, termination or similar amounts payable to such person by the Company
would be reduced by any amounts paid to such person as a part-time employee of
the Parent; (iii) such person would not hold a position as an officer of the
Company; and (iv) such person's employment would terminate automatically upon
the publication of results of operations covering at least thirty (30) days of
combined operations of Parent and the Company in the form of a quarterly
earnings report, an effective registration statement filed with the SEC, a
report to the SEC on Form 8-K, 10-Q or 10-K, or any other public filing or
announcement.
ARTICLE VII.
COVENANTS OF PARENT AND THE COMPANY
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Section 9.1
hereof, the Company and Parent agree that:
Section 7.1. Advise of Certain Changes. Each party will promptly advise
each other party to this Agreement in writing to the extent such party has
knowledge (i) of the occurrence of any event subsequent to the date of this
Agreement that would render any representation or
<PAGE>
warranty of such party contained in this Agreement, if made on or as of the date
of such event or the Effective Date, untrue, inaccurate or misleading in any
material respect, (ii) that any representation or warranty of such party
contained in this Agreement was untrue, inaccurate or misleading in any material
respect on the date hereof and (iii) of any change or development that would
have a Material Adverse Effect on such party.
Section 7.2. Agreement to Cooperate; Further Assurances. Subject to the
terms and conditions of the Agreement, each of the Company and Parent shall use
all reasonable efforts to take, or cause to be taken all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, subject to the requisite vote of stockholders of
the Company and Parent, including providing information and using all reasonable
efforts to (i) promptly obtain all necessary or appropriate waivers, consents
and approvals, and promptly effect all necessary registrations and filings
(including filings under the HSR Act), (ii) promptly obtain necessary consents
from both parties' bank lenders and (iii) promptly take all actions necessary or
desirable to ensure that the Merger will be accounted for as a pooling-of-
interests.
Section 7.3. No Solicitation.
(a) Except as set forth in Section 5.1 or Section 6.1 hereof, neither the
Company nor Parent shall, directly or indirectly, through any officer,
director, employee, investment banker, attorney, representative, affiliate or
agent of such party: (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving such
party or any of its Subsidiaries, other than the transactions contemplated by or
described in this Agreement (any of the foregoing inquiries or proposals being
referred to in this Agreement as an "Acquisition Proposal"), (ii) engage in
negotiations or discussions concerning, or provide any nonpublic information or
data to any person or entity relating to, any Acquisition Proposal, or (iii)
agree to, approve or recommend any Acquisition Proposal, or otherwise facilitate
any effort or attempt to make or implement an Acquisition Proposal; provided,
however, that nothing contained in this Agreement shall prevent the Company or
Parent or their respective Boards of Directors from (A) furnishing nonpublic
information or data to, or entering into discussions or negotiations with, any
person or entity in connection with an unsolicited bona fide written Acquisition
Proposal to such party or the stockholder of such party, if and only to the
extent that the Board of Directors of such party determines in good faith (after
consultation with its financial advisor) that such Acquisition Proposal would,
if consummated, result in a transaction more favorable to such party's
stockholders from a financial point of view than the transaction contemplated by
this Agreement (any such more favorable Acquisition Proposal being referred to
in this Agreement as "Superior Proposal") and the Board of Directors of such
party determines in good faith, after consultation with its outside legal
counsel, that such action is necessary for such party to comply with its
fiduciary duties to its stockholders under applicable law; or (B) complying with
Rule 14e-2 promulgated under the Exchange Act with
<PAGE>
regard to an Acquisition Proposal. Each of the Company and Parent will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
(b) The Company and Parent shall each (i) promptly notify the other party
after receipt by it (or its advisors) of any Acquisition Proposal or any
inquiries indicating that any person is considering making an Acquisition
Proposal, identifying such person, (ii) promptly notify the other party after
receipt of any request for nonpublic information relating to it or any of its
Subsidiaries or Affiliated Physician Groups or for access to its or any of its
Subsidiaries' or Affiliated Physician Groups' properties, books or records by
any person, identifying such person and the information requested by such
person, that may be considering making or has made, an Acquisition Proposal and
promptly provide the other party with any nonpublic information which is given
to such person pursuant to this Section 7.3(b), and (iii) keep the other party
advised of the status and principal financial terms of any such Acquisition
Proposal, indication or request unless the Board of Directors believes in good
faith that a Superior Proposal has been made and shall have determined in good
faith, based upon the written opinion of its outside legal counsel, that the
nondisclosure of the information required pursuant to this subsection (iii) to
the other party is necessary for such Board of Directors to comply with its
fiduciary duties to its stockholders under applicable law.
Section 7.4. Joint Proxy Statement; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement, the
Company and Parent shall prepare and file with the SEC the Joint Proxy
Statement, and, in connection therewith, Parent shall prepare and file with the
SEC the Registration Statement, in which the Joint Proxy Statement will be
included as a prospectus. The Company and Parent shall use all reasonable
efforts to cause the Registration Statement to be declared effective as soon
after such filing as practicable. The Joint Proxy Statement shall include the
recommendation for the Board of Directors of Parent in favor of this Agreement
and the transactions contemplated hereby, and the recommendation of the Board of
Directors of the Company in favor of this Agreement and the transactions
contemplated hereby, provided that the Board of Directors of either party may
modify or withdraw such recommendation if such Board of Directors believes in
good faith that a Superior Proposal has been made and shall have determined in
good faith after consultation with its outside legal counsel, that the
modification or withdrawal of such recommendation is necessary for such Board of
Directors to comply with its fiduciary duties to its stockholders under
applicable law.
(b) The Company and Parent shall make all other necessary filings with
respect to the Merger under the Securities Act and the Exchange Act.
Section 7.5. Stockholders' Meetings. Each of the Company and Parent shall
call a meeting of its stockholders to be held as promptly as practicable for the
purpose of voting upon, in the case of the Company, this Agreement and the
transactions contemplated hereby and, in the case of Parent, (i) the amendments
reflected in the Parent Restated Certificate, (ii) the issuance of Parent Common
Stock in connection with the Merger and the amendments to Parent's stock option
plans contemplated by Section 7.8 hereof. Subject to Sections 7.3 and
<PAGE>
7.4, the Company and Parent will, through their respective Boards of Directors,
recommend to their respective stockholders approval of such matters and will
coordinate and cooperate with respect to the timing of such meetings and shall
use their best efforts to hold such meetings on the same day and as soon as
practicable after the date hereof (and in any event within 45 days of the date
on which the Registration Statement shall be declared effective by the SEC).
Each party shall use all reasonable efforts to solicit from stockholders of such
party proxies in favor of such matters.
Section 7.6. Confidential Information. Except as otherwise contemplated
by this Agreement, the Company and Parent acknowledge that the Confidentiality
Agreement shall remain in full force and effect at all times prior to the
Effective Time and after any termination of this Agreement except as provided in
such Confidentiality Agreement, and reaffirm their agreement to comply with the
terms thereof.
Section 7.7. Communications. Parent and the Company will consult with
each other before issuing, and will provide each other the opportunity to
review, comment upon and concur with, any press release, Form 8-K or other
public statement with respect to the transactions contemplated by this
Agreement, and will not issue any such press release, file any Form 8-K with the
SEC or make any such public statement prior to such consultation, except as may
be required by applicable law, court process or pursuant to NMS requirements.
The parties agree that the initial press release to be issued with respect to
the transactions contemplated by this Agreement will be in the form heretofore
agreed to by the parties.
Section 7.8. Stock Option Plans and Delayed Delivery Shares.
(a) The Company and Parent shall take such action as may be necessary to
cause each unexpired and unexercised Company Option granted under the Company's
stock option plans (the "Company Stock Option Plans") to be automatically
converted at the Effective Time into an option (a "New 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
multiplied by the Exchange Ratio (with the resulting number of shares rounded
down to the nearest whole share), at a price per share of Parent Common Stock
equal to the option exercise price determined pursuant to the Company Option
divided by the Exchange Ratio (with the resulting exercise price rounded down to
the nearest whole cent). Except as set forth in Section 7.8(b), and except for
accelerated vesting of options as a result of the Merger, such New 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 New Parent Options pursuant to
this Section 7.8, (iii) from and after the Effective Time, upon exercise of the
New Parent Options in accordance with the terms thereof, make available for
issuance all shares of Parent Common Stock covered thereby and (iv) at the
Effective Time, issue to each holder of an outstanding Company Option a document
evidencing
<PAGE>
the foregoing assumption by Parent. Subject to consummation of the Merger,
Parent's board of directors has approved amendments to Parent's 1994 Affiliate
Stock Option Plan and 1993 Non-Employee Director Stock Option Plan to increase
the number of shares of Parent Common Stock available for issuance thereunder
and Parent shall refer such amendments to its stockholders for approval in
accordance with Section 7.5 hereof.
(b) As soon as practicable after the date hereof, Company shall cause
effective provision to be made so that each person or entity that has the right
to receive shares of Company Common Stock, as set forth on the Company
Disclosure Schedule pursuant to Section 3.7(iv) hereof or through the exercise
of Company Options, shall at the Effective Time have the right to receive the
number of shares of Parent Common Stock (without otherwise changing the terms of
such right to receive shares of Company Common Stock, including the acceleration
of delivery of any shares) as such person would have received had such person or
entity received the shares of Company Common Stock immediately prior to the
Effective Time. In addition, the Company shall use reasonable efforts to cause
each such person and entity to relinquish any demand registration rights
relating to any shares of Company Common Stock. As soon as practicable after
the date hereof, the Company shall deliver to the Parent written evidence of
satisfaction of the foregoing covenants.
Section 7.9. Registration of Company Stock Option Plans. Parent will file
on, or as soon as practicable after, the Effective Date, but in no event later
than twenty (20) business days after the Effective Date, a registration
statement on Form S-8 or other applicable form (or an amendment to a currently
effective registration statement on Form S-8) under the Securities Act covering
the shares of Parent Common Stock issuable upon the exercise of New Parent
Options created upon the assumption by Parent of Company Options under Section
7.8, and will use its reasonable efforts to cause such registration statement to
become effective as soon as practicable after the Effective Date and to maintain
such registration statement in effect until the exercise or expiration of each
such New Parent Option.
Section 7.10. Obligations of Merger Sub. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement. Merger Sub will not issue any shares of its capital stock, any
securities convertible into or exchangeable for its capital stock, or any
option, warrant or other right to acquire its capital stock to any person or
entity other than Parent.
Section 7.11. Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (except for the
fees contemplated by Section 9.4) shall be paid by the party incurring such
expenses, except that all expenses (excluding fees of counsel and accountants)
incurred in connection with preparation, printing and mailing of the Joint Proxy
Statement and the Registration Statement (as well as the filing fee relating
thereto) and obtaining regulatory approvals under the HSR Act and otherwise
(including all filing fees and counsel fees) shall be shared equally by Parent
and the Company.
<PAGE>
Section 7.12. Indemnification and Insurance. After the Effective Time,
the Surviving Corporation and the Parent shall indemnify and hold harmless, each
present and former director and officer of the Company and the Company
Subsidiaries (the "Indemnified Parties") as provided in their respective
charters and bylaws and as otherwise provided or permitted pursuant to any
agreement or arrangement in effect at the date hereof (to the extent consistent
with applicable law), and with respect to indemnification for acts and omissions
occurring at or prior to the Effective Time, which rights to be indemnified and
held harmless shall survive the Merger and shall continue in full force and
effect for a period of six years from the Effective Time; provided, that, in the
event any claim or claims (a "Claim or Claims") are asserted or made within such
six-year period, all rights to indemnification in respect of any such Claim or
Claims shall continue until disposition of any and all such Claim or Claims.
The Surviving Corporation and the Parent shall use their reasonable efforts to
cause to be maintained in effect for not less than six years from the Effective
Time the current policies of the directors' and officers' liability insurance
maintained by the Company (provided that the Surviving Corporation and the
Parent may substitute therefor policies of at least the same coverage containing
terms and conditions that are not less advantageous so long as no lapse in
coverage occurs as a result of such substitution) with respect to all matters,
including the transactions contemplated hereby, occurring prior to, and
including, the Effective Time; provided that, in the event that any Claim or
Claims are asserted or made within such six-year period, such insurance shall be
continued in respect of any such Claim or Claims until final disposition of any
and all such Claim or Claims. The provisions of this Section 7.12 are for the
benefit of, and may be enforced by, each Indemnified Party, his or her heirs and
his or her representatives.
Section 7.13. Supplemental Disclosure Schedules. At least five business
days prior to the Effective Time, Parent and the Company shall each be entitled
to deliver to the other an amended or supplemented Company Disclosure Schedule
or Parent Disclosure Schedule, as applicable (each a "Disclosure Schedule
Update"). If either Disclosure Schedule Update reflects a Material Adverse
Effect since the date of this Agreement with respect to the party delivering
such Disclosure Schedule Update or developments which are reasonably likely to
have a Material Adverse Effect on such party, then the other party shall have
the right to either (i) accept the Disclosure Schedule Update and close the
Merger subject to such disclosures or (ii) reject the Disclosure Schedule Update
and exercise its right to terminate this Agreement pursuant to Section 9.1 of
this Agreement.
Section 7.14. New Name for Parent. The parties hereto agree to use
their commercially reasonable efforts to determine a new name for Parent, and
the Parent Restated Certificate to be filed with the Secretary of State for the
State of Delaware to be effective at the Effective Time shall reflect such new
name. The new name shall be selected by a majority vote of the individuals
named in Section 2.1(c) hereof. If such individuals are unable to select a name
acceptable to a majority of them within sixty (60) days after the date hereof,
the selection of a name shall be by a majority vote of the individuals named in
Section 2.1(d) hereof under the heading "Executive Committee," which vote shall
be conclusive and binding upon each of the parties hereto.
<PAGE>
Section 7.15. Affiliates. As soon as practicable, the Company and Parent
shall use all reasonable efforts to obtain an Affiliate Agreement from any
Company or Parent Affiliate who has not previously executed such agreement and
from any person who may be deemed to have become a Company Affiliate or Parent
Affiliate after the date of this Agreement and on or prior to the Effective
Time. Parent shall not be required to maintain the effectiveness of the
Registration Statement for the purpose of resale of Parent Common Stock by
shareholders of the Company or Parent who may be Affiliates of the Company or
Parent pursuant to rule 145 under the Securities Act.
Section 7.16. Severance Payments. At the Effective Time, Parent will
guarantee payment in accordance with the terms described on the Company
Disclosure Schedule of the severance amounts due to the officers of the Company
listed on the Company Disclosure Schedule.
ARTICLE VIII.
CONDITIONS OF THE MERGER
Section 8.1. Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub hereunder to consummate the Merger and to
take the actions contemplated by Section 2.1 hereof are subject to the
satisfaction or waiver, at or prior to the Effective Time, of each of the
following conditions:
(a) Covenants; Accuracy of Representations and Warranties. (i) The
Company shall have performed in all material respects its agreements contained
in this Agreement required to be performed at or prior to the Effective Time;
(ii) the representations and warranties of the Company contained in Article III
shall be true and accurate at the date of this Agreement and as of the Effective
Time with the same force and effect as if they had been made as of the Effective
Time (except to the extent a representation or warranty speaks specifically as
of an earlier date and except as contemplated or permitted by this Agreement)
except for inaccuracies in any such representations and warranties that would
not, individually or in the aggregate have or reasonably be expected to have a
Material Adverse Effect on the Company; and (iii) the Company shall have
provided Parent with a certificate executed by two executive officers of the
Company, dated as of the Effective Date, to such effect.
(b) Consents. The Company shall have obtained all written consents,
assignments, waivers or authorizations, other that those governmental approvals
contemplated by Section 8.3(d), that are required to be obtained by the Company
as a result of the Merger, except those for which failure to obtain such
consents, assignments, waivers or authorizations would not, individually or in
the aggregate, have a Material Adverse Effect on Parent and the Surviving
<PAGE>
Corporation, taken as a whole, or adversely affect the consummation of the
transactions contemplated hereby.
(c) Letter of Parent's Accountants. Parent shall have received the letter
of PricewaterhouseCoopers LLP referred to in Section 6.4 hereof.
(d) Director Resignations. The Company shall have obtained to be
effective at the Effective Time, letters of resignation from each of the members
of its Board of Directors.
(e) Officer Resignations; Noncompetition Agreements. The Company shall
have obtained to be effective at the Effective Time, letters of resignation from
each of its executive officers listed on the Company Disclosure Schedule and
each such officer shall be subject to noncompetition covenants reasonably
acceptable to Parent (it being agreed that the noncompetition covenants in such
officers' existing employment agreements are acceptable to Parent).
(f) Fairness Opinion. Parent shall have received the opinion of the
Parent Financial Advisor contemplated by Section 6.5 hereof.
Section 8.2. Conditions to Obligations of the Company. The obligations of
the Company hereunder to consummate the Merger and to take the actions
contemplated by Section 2.1 hereof are subject to the satisfaction or waiver, at
or prior to the Effective Time, of each of the following conditions:
(a) Covenants; Accuracy of Representations and Warranties. (i) Parent
shall have performed in all material respects its agreements contained in this
Agreement required to be performed at or prior to the Effective Time; (ii) the
representations and warranties of Parent set forth in Article IV shall be true
and accurate at the date of this Agreement and as of the Effective Time with the
same force and effect as if they had been made as of the Effective Time (except
to the extent a representation or warranty speaks specifically as of an earlier
date and except as contemplated by this Agreement) except, in each case, for
inaccuracies in any such representations and warranties that would not,
individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect on Parent; and (iii) Parent shall have provided the
Company with a certificate executed by two executive officers of Parent, dated
as of the Effective Date, to such effect.
(b) Consents. Parent shall have obtained all written consents,
assignments, waivers or authorizations, other than the governmental approvals
contemplated by Section 8.3(d), that are required to be obtained by Parent as a
result of the Merger, except those for which failure to obtain such consents,
assignments, waivers or authorizations would not, individually or in the
aggregate, have a Material Adverse Effect on Parent and the Surviving
Corporation, taken as a whole, or adversely affect the consummation of the
transactions contemplated hereby.
The parties hereto expressly agree that any failure to obtain either or
both of the consents listed on the Parent Disclosure Schedule as items (ii) and
(iii) with reference to Section 4.6(c)
<PAGE>
shall not constitute a Material Adverse Effect on Parent and the Surviving
Corporation, taken as a whole, or adversely affect the consummation of the
transactions contemplated hereby.
(c) Letter of the Company's Accountants. The Company shall have received
the letter of Arthur Andersen LLP, referred to in Section 5.4 hereof.
(d) Tax Opinion. The Company shall have received an opinion in form and
substance reasonably satisfactory to it from Bass, Berry & Sims PLC, counsel to
the Company, dated as of the Effective Date, substantially to the effect that
the Merger shall be treated as a reorganization within the meaning of Section
368(a) of the Code, subject to assumptions or representations including those of
Company and Parent typical to opinions of this nature and reasonably acceptable
to the Company's legal counsel.
(e) Director Resignations. Parent shall have obtained to be effective as
of the Effective Time, letters of resignation from each of the members of its
Board of Directors listed on the Parent Disclosure Schedule from their position
as a director of Parent and from each of the members of Parent's Audit and
Compensation Committees listed on the Parent Disclosure Schedule from their
position as a member of one or both of such Committees.
(f) Fairness Opinion. The Company shall have received the opinion of the
Company Financial Advisor contemplated by Section 5.5 hereof.
Section 8.3. Conditions to Obligations of Each Party. The respective
obligations of the Company, on the one hand, and Parent and Merger Sub, on the
other hand, to consummate the Merger and to take the actions contemplated by
Section 2.1 are subject to the satisfaction or waiver, at or prior to the
Effective Time, of each of the following conditions:
(a) Stockholder Approval. The Company's stockholders shall have duly
approved this Agreement and the transactions contemplated hereby, and Parent's
stockholders shall have approved amendments reflected in the Parent Restated
Certificate required under Section 2.1, the issuance of Parent Common Stock in
connection with the Merger and the amendments to Parent's 1994 Affiliate Stock
Option Plan and 1993 Non-Employee Director Stock Option Plan descried in Section
7.8, all in accordance with applicable laws and regulatory requirements.
(b) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order, and the Joint Proxy Statement shall
as of the Effective Time not be subject to any proceedings commenced or overtly
threatened by the SEC.
(c) Illegality or Legal Constraint. No statute, rule, regulation,
executive order, decree, injunction or restraining order shall have been
enacted, promulgated or enforced (and not repealed, superseded or otherwise made
inapplicable) by any court or Governmental Entity which prohibits the
consummation of the transactions contemplated by this Agreement or imposes
material conditions with respect thereto (each party agreeing to use all
reasonable efforts to have any such order, decree or injunction lifted).
<PAGE>
(d) Governmental Approvals. The parties hereto shall have made the
requisite filings with all Governmental Entities as shall be required pursuant
to applicable laws, rules and regulations, and such Governmental Entities, to
the extent required by applicable law, shall have approved the transactions
contemplated by this Agreement, except where the failure to obtain any such
approval would not, individually or in the aggregate, have a Material Adverse
Effect on Parent and the Surviving Corporation, taken as a whole, or upon the
consummation of the transactions contemplated hereby.
(e) HSR Act. The waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated.
(f) NMS Listing. Listing on NMS of the shares of Parent Common Stock to
be issued in the Merger shall have been approved on notice of issuance thereof.
(g) Pooling Letters. Each of Parent and the Company shall have received a
letter of its independent public accountants, dated the Effective Date, in form
and substance reasonably satisfactory to it stating that the transactions
effective pursuant to Article I of this Agreement will qualify as transactions
to be accounted for in accordance with the pooling-of-interests method of
accounting under the requirements of APB No. 16.
ARTICLE IX.
TERMINATION OF AGREEMENT
Section 9.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time whether before or after the approval by the
stockholders of the Company or Parent:
(a) by mutual consent of the Boards of Directors of Parent and the
Company;
(b) by Parent or the Company, if (i) the Effective Date shall not have
occurred on or before July 1, 1999 (or August 1, 1999 if the only condition
remaining unfulfilled at July 1, 1999 is approval by any required Governmental
Entity, and Parent and Company are continuing to seek to obtain such approval),
(ii) any Governmental Entity, the consent of which is a condition to the
obligations of Parent and the Company to consummate the transactions
contemplated hereby, shall have determined not to grant its consent, and all
appeals of such determination shall have been taken and have been unsuccessful
or (iii) any court of competent jurisdiction shall have issued an order,
judgment or decree (other than a temporary restraining order) restraining,
enjoining or otherwise prohibiting the Merger and such order, judgment or decree
shall have become final and nonappealable; provided however, that the right to
terminate this Agreement pursuant to clause (i) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Date to occur on or
before such date;
<PAGE>
(c) by Parent or the Company, if, at the meeting of the Company
stockholders (including any adjournment or postponement thereof) called pursuant
to Section 7.5 hereof, the requisite vote of the stockholders of the Company in
favor of the matters set forth in such section shall not have been obtained;
(d) by Parent or the Company, if, at the meeting of Parent stockholders
(including any adjournment or postponement thereof) called pursuant to Section
7.5 hereof, the requisite vote of stockholders of Parent in favor of the matters
set forth in such section shall not have been obtained;
(e) by Parent, if (i) there has been a breach by the Company of any
representation or warranty set forth in this Agreement, which breach would
result in a Material Adverse Effect on the Company, or upon the consummation of
the transactions contemplated hereby, which has not been cured within ten
business days following receipt by the Company of notice of such breach; (ii)
there has been a material breach by the Company of any covenant or agreement set
forth in this Agreement, which breach has not been cured within ten business
days following receipt by the Company of notice of such breach; (iii) the Board
of Directors of the Company shall have withdrawn or modified in a manner adverse
to the Parent its approval or recommendation of the transactions contemplated by
this Agreement or recommended an Acquisition Proposal; (iv) except in connection
with the transactions contemplated by this Agreement, the Company (or its Board
of Directors) shall have waived, redeemed, amended or allowed to lapse any
material term or condition of the Company Rights Agreement, or the Company
Rights Agreement or the Company Rights shall have been declared in any material
respect void, illegal or unenforceable; or (v) subject to Section 9.2 hereof,
the Board of Directors of Parent shall have withdrawn or modified in a manner
adverse to the Company its approval or recommendation of the transactions
contemplated by this Agreement in order to permit Parent to execute a definitive
agreement providing for the transaction or transactions contemplated by a
Superior Proposal; provided, however, that the right to terminate this Agreement
pursuant to this Section 9.1(e)(i) or (ii) shall not be available to Parent if
it, at such time, is in material breach of any representation, warranty,
covenant or agreement set forth in this Agreement; or
(f) by the Company, if (i) there has been a breach by Parent of any
representation or warranty set forth in this Agreement, which breach would
result in Material Adverse Effect on Parent and the Surviving Corporation, taken
as a whole, or upon the consummation of the transactions contemplated hereby,
which has not been cured within ten business days following receipt by Parent of
notice of such breach; (ii) there has been a material breach by Parent of any
covenant or agreement set forth in this Agreement, which breach is not cured
within ten business days following receipt by Parent of notice of such breach;
(iii) the Board of Directors of Parent shall have withdrawn or modified in a
manner adverse to the Company its approval or recommendation of the transactions
contemplated by this Agreement or recommended an Acquisition Proposal; (iv)
except in connection with the transactions contemplated by this Agreement,
Parent (or its Board of Directors) shall have waived, redeemed, amended or
allowed to lapse any material term or condition of the Parent Rights Agreement,
or the Parent Rights Agreement or the Parent Rights shall have been declared in
any material respect void, illegal or unenforceable; or (v) subject to Section
9.2 hereof, the Board of Directors of the Company shall have withdrawn or
modified in a manner adverse to Parent its approval or recommendation of
<PAGE>
the transactions contemplated by this Agreement in order to permit the Company
to execute a definitive agreement providing for the transaction or transactions
contemplated by a Superior Proposal; provided, however, that the right to
terminate this Agreement pursuant to this Section 9.1(f)(i) or (ii) shall not be
available to the Company if it, at such time, is in material breach of any
representation, warranty, covenant or agreement set forth in this Agreement.
Section 9.2. Certain Actions Prior to Termination.
(a) Parent shall provide to the Company the written notice required by
Section 7.3(b) prior to any termination of this Agreement pursuant to Section
9.1(e)(v) advising the Company that the Board of Directors of Parent has
received a Superior Proposal. At any time after the fourth business day
following such notice, Parent may terminate this Agreement as provided in
Section 9.1(e)(v) only if (i) the Board of Directors of Parent determines that
such Superior Proposal remains more favorable to its stockholders than the
transactions contemplated by this Agreement (which determination shall be made
in light of any revised proposal made by the Company prior to the expiration of
such four-business day period) and (ii) the termination fee contemplated by
Section 9.4(b) shall have been paid to the Company.
(b) The Company shall provide to Parent the written notice required by
Section 7.3(b) prior to any termination of this Agreement pursuant to Section
9.1(f)(v) advising Parent that the Board of Directors of the Company has
received a Superior Proposal. At any time after the fourth business day
following such notice, the Company may terminate this Agreement as provided in
Section 9.1(f)(v) only if (i) the Board of Directors of the Company determines
that such Superior Proposal remains more favorable to its stockholders than the
transactions contemplated by this Agreement (which determination shall be made
in light of any revised proposal made by Parent prior to the expiration of such
four-business day period) and (ii) the termination fee contemplated by Section
9.4(a) shall have been paid to Parent.
Section 9.3. Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 9.1 hereof,
this Agreement shall forthwith become void (except as set forth in the last
sentence of each of Sections 5.2 and 6.2 and in Sections 7.6, 7.7, 7.11 and 9.4)
and there shall be no liability on the part of Parent, Merger Sub or the Company
or their respective officers or directors, except for any breach of a party's
obligations under the last sentence of Sections 5.2 and 6.2 or under Sections
7.6, 7.7, 7.11 and 9.4. Notwithstanding the foregoing, no party hereto shall be
relieved from liability for any willful or intentional breach of this Agreement.
Section 9.4. Termination Fee.
(a) Notwithstanding any other provision of this Agreement so long as the
Company is not entitled to terminate this Agreement by reason of Section
9.1(f)(i) or 9.1(f)(ii), (i) if this Agreement is terminated pursuant to Section
9.1(e)(iii), Section 9.1(e)(iv) or Section 9.1(f)(v), then the Company shall
promptly pay to
<PAGE>
Parent a fee of $20 million; (ii) if this Agreement is terminated pursuant to
Section 9.1(c) or 9.1(e)(ii), then the Company shall promptly pay to Parent a
fee of $15 million; or (iii) if this Agreement is terminated pursuant to Section
9.1(e)(i), then the Company shall promptly pay to Parent a fee of $12 million.
The Company shall make all such payments promptly (and in any event within two
days of receipt by the Company of written notice from Parent) by wire transfer
of immediately available funds to an account designated by Parent.
(b) Notwithstanding any other provision of this Agreement, so long as
Parent is not entitled to terminate this Agreement by reason of Section
9.1(e)(i) or 9.1(e)(ii), (i) if the Agreement is terminated pursuant to Section
9.1(f)(iii), Section 9.1(f)(iv) or Section 9.1(e)(v), then the Parent shall
promptly pay to the Company a fee of $20 million; (ii) if this Agreement is
terminated pursuant to Section 9.1(d) or Section 9.1(f)(ii), then the Parent
shall promptly pay to the Company a fee of $15 million; or (iii) if this
Agreement is terminated pursuant to Section 9.1(f)(i), then Parent shall
promptly pay to the Company a fee of $12 million. Parent shall make all such
payments promptly (and in any event within two days of receipt by Parent of
written notice from the Company) by wire transfer of immediately available funds
to an account designated by the Company.
ARTICLE X.
MISCELLANEOUS
Section 10.1. Further Assurances. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement. The covenants and agreements contained in this
Agreement shall survive the Effective Time and if the Agreement is terminated
the provisions of Section 9.3 shall apply.
Section 10.2. Survival. None of the representations and warranties in
this Agreement shall survive the termination of this Agreement or the Effective
Time; provided, however, the termination of this Agreement shall not relieve any
party hereto from any liability for any willful breach of this Agreement.
Section 10.3. Notices. Whenever any party hereto desires or is required
to give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States registered or certified mail,
postage prepaid, or sent by prepaid overnight courier or confirmed telecopier,
addressed as follows:
<PAGE>
(a) if to Parent or Merger Sub, to:
AMERICAN ONCOLOGY RESOURCES, INC.
16825 Northchase Drive, Suite 1300
Houston, Texas 77060
Attention: R. Dale Ross
Phillip H. Watts
Telecopy: 281-775-0388
with copies (which shall not constitute notice) to:
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002-2778
Attention: Diana M. Hudson
Telecopy: 713-225-7047
(b) if to the Company, to:
PHYSICIAN RELIANCE NETWORK, INC.
5420 LBJ Freeway, Suite 900
Dallas, Texas 75240
Attention: John T. Casey
George P. McGinn, Jr.
Telecopy: 972-387-0048
with a copy (which shall not constitute notice) to:
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Attention: Cynthia Y. Reisz
Telecopy: 615-742-6293
Such communications shall be effective when they are received by the
addressee thereof. Any party may change its address for such communications by
giving notice thereof to the other parties in conformity with this Section.
Section 10.4. Governing Laws and Consent to Jurisdiction. The laws of the
State of Delaware (irrespective of its choice of law principles) shall govern
all issues concerning the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties. Each of the parties hereof irrevocably submits to the exclusive
jurisdiction of the courts of the State of Delaware and the Federal courts of
the United States of America located in the State of Delaware (and the Delaware
State and Federal courts having jurisdiction over appeals therefrom) in respect
of the transactions contemplated
<PAGE>
by this Agreement, the other agreements and documents referred to herein and the
transactions contemplated by this Agreement and such other documents and
agreements.
Section 10.5. Binding Upon Successors and Assigns; Assignment. This
Agreement and the provisions hereof shall be binding upon each of the parties,
their permitted successors and assigns. This Agreement may not be assigned by
any party without the prior consent of each other.
Section 10.6. Severability. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full force and effect and in
no way be affected, impaired or invalidated.
Section 10.7. Entire Agreement; No Third Party Beneficiaries. Except as
contemplated by Section 7.12, this Agreement, together with the Confidentiality
Agreement and the other agreements and instruments referenced herein, (a)
constitutes the entire understanding, and agreement of the parties with respect
to the subject matter hereof and supersedes all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto and (b) is not intended
to confer upon any person other than the parties any rights or remedies
hereunder.
Section 10.8. Other Remedies. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.
Section 10.9. Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby.
The waiver by a party of any breach hereof or default in the performance hereof
shall not be deemed to constitute a waiver of any other default or any
succeeding breach or default, unless such waiver so expressly states. At any
time before or after approval of this Agreement and the Merger by the
stockholders of the Company and prior to the Effective Time, this Agreement may
be amended or supplemented by the parties hereto with respect to any of the
terms contained in this Agreement, except that following approval by the
stockholders of the Company there shall be no amendment or change to the
provisions hereof with respect to the Exchange Ratio without further approval by
the stockholders of the Company, and no other amendment shall be made which by
law requires further approval by such stockholders without such further
approval.
<PAGE>
Section 10.10. Disclosure Schedules. Each of the Parent Disclosure
Schedule, the Company Disclosure Schedule and the Disclosure Schedule Updates
are an integral part of this Agreement and all statements disclosed on any part
of any such schedule shall be deemed to be disclosed in all parts of such
schedule and not only in connection with the specific representation with
respect to which such statements are explicitly referenced.
Section 10.11. No Waiver. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
Section 10.12. Construction of Agreement. A reference to an Article,
Section or an Exhibit shall mean an Article of, a Section in, or Exhibit to,
this Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole. The words
"include," "includes" when used herein shall be deemed in each case to be
followed by the words "without limitation."
Section 10.13. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all the parties reflected hereon as signatories.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AMERICAN ONCOLOGY RESOURCES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
DIAGNOSTIC ACQUISITION, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
PHYSICIAN RELIANCE NETWORK, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT 2.2
COMPANY STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of December
11, 1998, is by and between American Oncology Resources, Inc. ("Grantee"), and
Physician Reliance Network, Inc. ("Issuer").
RECITALS
N. Grantee and Issuer, together with Diagnostic Acquisition, Inc., have
entered into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), which has been executed in connection with this Agreement
(each capitalized term used herein without definition shall have the meaning
specified in the Merger Agreement).
O. As a condition to Grantee's entering into the Merger Agreement and in
consideration therefor, Issuer has agreed to grant to Grantee the Option (as
hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. GRANT OF OPTION. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof,
5,203,630 shares of fully paid and nonassessable common stock of the Issuer, no
par value per share ("Common Stock"), which is equal to 10.1% of the number of
shares of Common Stock issued and outstanding on the date hereof, together with
any associated purchase rights (the "Rights") under the Rights Agreement, dated
as of June 2, 1997, between Issuer and Harris Trust and Savings Bank, as Rights
Agent (references to shares purchasable upon exercise of the Option shall be
deemed to include the associated Rights), as of the date hereof at a purchase
price of $11.50 per share of Common Stock, as adjusted in accordance with the
provisions of Section 5 of this Agreement (such price, as adjusted if
applicable, the "Option Price").
2. EXERCISE OF OPTION.
(a) EXERCISE. Grantee may exercise the Option, in whole or part, and from
time to time, if, but only if, a Triggering Event (as hereinafter defined) shall
have occurred prior to the occurrence of an Option Termination Event (as
hereinafter defined), provided that Grantee shall have sent the written notice
of such exercise (as provided in subsection (e) of this Section 2) on or prior
to the last date of the 14-month period following such Triggering Event ("Option
Expiration Date").
(b) OPTION TERMINATION EVENTS. The term "Option Termination Event" shall
mean any of the following events: (i) immediately prior to the Effective Time
of the Merger; (ii)
<PAGE>
termination of the Merger Agreement (other than immediately after or during the
continuance of a Triggering Event); or (iii) the last date of the 14-month
period following any termination of the Merger Agreement immediately after or
during the continuance of a Triggering Event. Notwithstanding the foregoing, the
Option may not be exercised if the Grantee is in material breach of its
representation or warranties, or in material breach of any of its covenants or
agreements, contained in this Agreement, the Parent Stock Option Agreement or
the Merger Agreement.
(c) TRIGGERING EVENTS. The term "Triggering Event" shall mean any of the
following events occurring after the date hereof: so long as the Merger
Agreement is not terminable pursuant to Section 9.1(e)(i) or Section 9.1(e)(ii)
thereof, at any time after the Merger Agreement becomes terminable pursuant to
Section 9.1(e)(iii), Section 9.1(e)(iv) or Section 9.1(f)(v) thereof (regardless
of whether the Merger Agreement is actually terminated).
(d) NOTICE OF TRIGGERING EVENT. Issuer shall notify Grantee promptly in
writing of the occurrence of any Triggering Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Grantee
to exercise the Option or for a Triggering Event to have occurred.
(e) NOTICE OF EXERCISE; CLOSING. In the event Grantee is entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if the closing of the purchase and sale pursuant to the Option
(the "Closing") cannot be consummated, in the reasonable opinion of Grantee, by
reason of any applicable judgment, decree, order, law or regulation, the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which restriction on consummation has expired or been
terminated; and provided further, without limiting the foregoing, that if, in
the reasonable opinion of Grantee, prior notification to or approval of any
regulatory agency is required in connection with such purchase, Grantee shall
promptly file the required notice or application for approval and shall
expeditiously process the same, and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto. Notwithstanding this subsection (e), in no event shall any Closing
Date be more than 14 months after the related Notice Date, and if the Closing
Date shall not have occurred within 14 months after the related Notice Date due
to the failure to obtain any such required approval, the exercise of the Option
effected on the Notice Date shall be deemed to have expired.
(f) PURCHASE PRICE. At the Closing referred to in subsection (e) above,
Grantee shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude Grantee from exercising the Option.
<PAGE>
(g) ISSUANCE OF COMMON STOCK. At the Closing, simultaneously with the
delivery of immediately available funds as provided in subsection (f) of this
Section 2, Issuer shall deliver to Grantee a certificate or certificates
representing the number of shares of Common Stock purchased by the Grantee and,
if the Option is exercised in part only, a new Option evidencing the rights of
Grantee thereof to purchase the balance of the shares purchasable hereunder, and
the Grantee shall deliver to Issuer a copy of this Agreement and a letter
agreeing that Grantee will not offer to sell or otherwise dispose of such shares
in violation of applicable law or the provisions of this Agreement. If at the
time of issuance of any Option Shares (as defined herein) pursuant to an
exercise of all or part of the Option hereunder Issuer shall not have redeemed
the Rights, or shall have issued any similar securities, then each Option Share
issued pursuant to such exercise shall also represent rights or new rights with
terms substantially the same as and at least as favorable to Grantee as are
provided under Issuer's shareholder rights agreement or any similar agreement
then in effect.
(h) LEGEND. Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer and voting of the shares represented by this certificate are
subject to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the Securities
Act of 1933, as amended. A copy of such agreement is on file at the
principal office of Issuer and will be provided to the holder hereof
without charge upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the effect
that such legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) RECORD GRANTEE; EXPENSES. Upon the giving by Grantee to Issuer of the
written notice of exercise of the Option provided for under subsection (e) of
this Section 2 and the tender of the applicable purchase price in immediately
available funds, Grantee shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
Grantee or the Issuer shall have failed or refused to designate the bank account
described in subsection (f) of this Section 2. Issuer shall pay all expenses
and any and all United States federal, state and local taxes and other charges
that may be payable in connection with the preparation, issuance and
<PAGE>
delivery of stock certificates under this Section 2 in the name of Grantee or
its assignee, transferee or designee.
3. RESERVATION OF SHARES. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock (and other securities issuable pursuant to
Section 5(a)) so that the Option may be exercised without additional
authorization of Common Stock (or such other securities) after giving effect to
all other options, warrants, convertible securities and other rights to purchase
Common Stock (or such other securities); (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Issuer; (iii) promptly to take all action as
may from time to time be required (including without limitation complying with
all premerger notification, reporting and waiting periods under the HSR Act) in
order to permit Grantee to exercise the Option and Issuer duly and effectively
to issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of Grantee against dilution.
4. DIVISION OF OPTION; LOST OPTIONS. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and
"Option" as used herein include any Stock Option Agreements and related Options
for which this Agreement (and the Option granted hereby) may be exchanged. Upon
receipt by Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, Issuer will execute and deliver a
new Agreement of like tenor and date. Any such new Agreement executed and
delivered shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The number of shares of
Common Stock purchasable upon the exercise of the Option shall be subject to
adjustment from time to time as provided in this Section 5.
(a) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date hereof (an "Increase"), the number
of shares of Common Stock subject to the Option shall be increased so that the
number of shares issuable upon exercise of the Option shall be equal to the
product of (A) the percentage of the outstanding Common Stock for which the
Option was exercisable immediately prior to the Increase and (B) the number of
shares of Common Stock outstanding immediately after the Increase; provided that
the number of shares of Common Stock subject to the Option shall in no event
exceed 10.1% of the issued and outstanding shares of Common Stock immediately
prior to exercise.
<PAGE>
(b) In the event of any change in Common Stock by reason of stock
dividends, splits, mergers, recapitalization, combinations, subdivisions,
conversions, exchanges of shares or other similar transactions and no adjustment
is required pursuant to the terms of Section 5(a), then the type and number of
shares of Common Stock purchasable upon exercise hereof shall be appropriately
adjusted so that Grantee shall receive upon exercise of the Option and payment
of the aggregate Option Price hereunder the number and class of shares or other
securities or property that Grantee would have received in respect of Common
Stock if the Option had been exercised in full immediately prior to such event,
or the record date therefor, as applicable.
(c) Whenever the number of shares of Common Stock changes after the date
hereof, the Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which shall be equal to the aggregate number of
shares of Common Stock purchasable prior to the adjustment and the denominator
of which shall be equal to the aggregate number of shares of Common Stock
purchasable immediately after the adjustment.
6. REGISTRATION RIGHTS. Upon the occurrence of a Triggering Event that
occurs prior to an Option Termination Event, Issuer shall, at the request of
Grantee, deliver at any time on or prior to the Option Expiration Date (whether
on its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the
Securities Act covering any shares issued and issuable pursuant to this Option
and shall use its best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
any shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its best efforts to cause such registration statement
first to become effective and then to remain effective for such period not in
excess of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary to effect such
sales or other dispositions. Grantee for a period of 14 months following such
first request shall have the right to demand a second such registration if
reasonably necessary to effect such sales or dispositions. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the
Grantee's Option or Option Shares would interfere with the successful marketing
of the shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced; and provided, however, that after any such required reduction the
number of Option Shares to be included in such offering for the account of
Grantee shall constitute at least 25% of the total number of shares to be sold
by Grantee and Issuer in the aggregate; and provided further, however, that if
such reduction occurs, then the Issuer shall file a registration statement for
the balance as promptly as practicable and no reduction shall thereafter occur
(and such registration shall not be charged against Grantee). Grantee shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any Grantee in
connection with such
<PAGE>
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from Grantee, Issuer agrees to send a
copy thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies.
7. REPURCHASE OF OPTION AND OPTION SHARES.
(a) Within ten business days following the occurrence of a Repurchase
Event (as defined below), Issuer shall (i) deliver an offer (a "Repurchase
Offer") to repurchase the Option from Grantee at a price (the "Option Repurchase
Price") equal to the amount by which (A) the Acquisition Proposal Price (as
defined below) exceeds (B) the Option Price, multiplied by the number of shares
for which the Option may then be exercised, and (ii) deliver an offer (also, a
"Repurchase Offer") to repurchase the Option Shares from each owner of Option
Shares (excluding such Option Shares as have been publicly distributed prior to
the delivery of the Repurchase Offer) from time to time (each, an "Owner") at a
price (the "Option Share Repurchase Price") equal to the Acquisition Proposal
Price multiplied by the number of Option Shares then held by such Owner. The
term "Acquisition Proposal Price" shall mean, as of any date for the
determination thereof, the price per share of Common Stock paid pursuant to the
Acquisition Proposal (as defined in the Merger Agreement) or, in the event of a
sale of assets of Issuer, the last per-share sale price of Common Stock on the
fourth trading day following the announcement of such sale. If the
consideration paid or received in the Acquisition Proposal shall be other than
in cash, the value of such consideration shall be determined by a nationally
recognized investment banking firm selected by Grantee, which determination
shall be conclusive for all purposes of this Agreement.
(b) Upon the occurrence of a Repurchase Event and whether or not Issuer
shall have made a Repurchase Offer under Section 7(a), (i) at the request (the
date of such request being the "Option Repurchase Request Date") of Grantee
delivered prior to the Option Expiration Date, Issuer shall repurchase the
Option from Grantee at the Option Repurchase Price, and (ii) at the request (the
date of such request being the "Option Share Repurchase Request Date") of any
Owner delivered prior to the Option Expiration Date, Issuer shall repurchase
such number of the Option Shares from the Owner as the Owner shall designate at
the Option Share Repurchase Price.
(c) Grantee and/or the Owner, as the case may be, may accept Issuer's
Repurchase Offer under Section 7(a) or may exercise its right to require Issuer
to repurchase the Option and/or any Option Shares pursuant to Section 7(b) by a
written notice or notices stating that Grantee or the Owner, as the case may be,
elects to accept such offer or to require Issuer to repurchase the Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days, after the
surrender to it of this Agreement and/or Certificates for Option Shares, as
applicable, following receipt of a notice under this Section 7(c) and the
occurrence of a Repurchase Event, Issuer
<PAGE>
shall deliver or cause to be delivered to Grantee the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price and/or the portion thereof
that Issuer is not then prohibited from so delivering under applicable law.
(d) Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish any repurchase contemplated by
this Section 7. Nonetheless, to the extent that Issuer is prohibited under
applicable law from repurchasing the Option and/or any Option Shares in full,
Issuer shall immediately so notify Grantee and/or the Owner and thereafter
deliver or cause to be delivered, from time to time, to Grantee and/or the
Owner, as appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to Section 7(c) is prohibited under
applicable law, from delivering to Grantee and/or the Owner, as appropriate, the
Option Repurchase Price or the Option Share Repurchase Price, respectively, in
full, Grantee or the Owner, as appropriate, may revoke its notice of repurchase
of the Option or the Option Shares either in whole or in part whereupon, in the
case of a revocation in part, Issuer shall promptly (i) deliver to Grantee
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering
after taking into account any such revocation and (ii) deliver, as appropriate,
either (a) to Grantee, a new Agreement evidencing the right of Grantee to
purchase that number of shares of Common Stock equal to the number of shares of
Common Stock purchasable immediately prior to the delivery of the notice of
repurchase less the number of shares of Common Stock covered by the portion of
the Option repurchased or (b) to the Owner, a certificate for the number of
Option Shares covered by the revocation. If an Option Termination Event shall
have occurred prior to the date of the notice by Issuer described in the second
sentence of this subsection (d), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
Grantee shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period.
(e) The term "Repurchase Event" shall mean a Triggering Event followed by
the earlier of the signing of a definitive agreement to consummate or the
consummation of any transaction or event included in the definition of
Acquisition Proposal.
(f) Notwithstanding anything to the contrary in Sections 2(a) and 2(e),
the delivery of a notice by Grantee under Section 7(c) specifying that such
notice relating to an anticipated Repurchase Event is based on the Issuer's
public announcement of the execution of an agreement providing for the
consummation of an Acquisition Proposal shall be deemed to constitute an
election to exercise the Option as to the number of Option Shares not heretofore
purchased pursuant to one or more prior exercises of the Option on the fifth
business day following the public announcement of the consummation of the
transaction contemplated by such agreement, in which event a closing shall occur
with respect to such unpurchased Option
<PAGE>
Shares in accordance with Section 2(e) on such fifth business day (or such later
date as determined pursuant to the provisos in the first sentence of Section
2(e)).
8. SUBSTITUTE OPTION IN THE EVENT OF CORPORATE CHANGE.
(a) In the event that prior to an Option Termination Event, Issuer shall
enter into an agreement (i) to consolidate with or merge into any person, other
than Grantee or one of its subsidiaries, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then-outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then-outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Grantee, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all
of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by the
issuer of the Substitute Option upon exercise of the Substitute
Option.
(3) "Assigned Value" shall mean the Acquisition Proposal Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a share of the
Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than
the closing price of the shares of Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided, that if Issuer
is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the person
merging into Issuer or by any company which controls or is controlled
by such person, as Grantee may elect.
<PAGE>
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Grantee. The issuer of the Substitute Option shall
also enter into an agreement with Grantee in substantially the same form as this
Agreement, which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 10.1% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 10.1% of the
shares of the Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option shall make a cash payment to
Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e).
This difference in value shall be determined by a nationally recognized
investment banking firm selected by Grantee.
(f) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. EXTENSION OF TIME FOR REGULATORY APPROVALS. The 14-month period for
exercise of certain rights under Sections 2, 6, 7, 13 and 14 shall be extended:
(i) to the extent necessary to obtain all regulatory approvals for the exercise
of such rights, and for the expiration of all statutory waiting periods; and
(ii) to the extent necessary to avoid liability under Section 10(b) of the
Exchange Act by reason of such exercise.
10. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. Issuer hereby
represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly
<PAGE>
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement or
to consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Issuer. This Agreement is the valid and
legally binding obligation of Issuer, enforceable against Issuer in accordance
with its terms.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests, and not subject to any preemptive rights.
(c) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation pursuant to any provisions of the Articles of
Incorporation or by-laws of Issuer or any Issuer subsidiary, subject to
obtaining any approvals or consents contemplated hereby, result in any violation
of any loan or credit agreement, note, mortgage, indenture, lease, plan, or
other agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Issuer or any Issuer subsidiary or their respective properties or assets
which violation would have, individually or in the aggregate, a Material Adverse
Effect on the Issuer.
11. ASSIGNMENT OF OPTION BY GRANTEE. Neither of the parties hereto may
assign any of its rights or obligations under this Option Agreement or the
Option created hereunder to any other person, without the express written
consent of the other party.
12. LIMITATION OF GRANTEE PROFIT.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $25,000,000
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (i) reduce the number of shares of Common Stock subject
to this Option, (ii) deliver to the Issuer for cancellation Option Shares
previously purchased by Grantee, (iii) pay cash to the Issuer, or (iv) any
combination thereof, so that Grantee's actually realized Total Profit shall not
exceed $25,000,000 after taking into account the foregoing actions.
(b) As used herein, the term "Total Profit" shall mean the amount (before
taxes) of the following:
(1) the aggregate amount of (i) (x) the net cash amounts received by
Grantee pursuant to the sale of Option Shares (or any other
securities into which such Option Shares are converted or
exchanged) to any unaffiliated party within 12 months from the
exercise of this Option with respect to such
<PAGE>
Option Shares, less (y) the Grantee's purchase price of such
Option Shares, (ii) any amounts received by Grantee on the
transfer of the Option (or any portion thereof) to any
unaffiliated party, if permitted hereunder, (iii) any equivalent
amount with respect to the Substitute Option, and (iv) the amount
received by Grantee pursuant to Section 9.4 of the Merger
Agreement; minus
(2) the amount of cash paid to the Issuer pursuant to this Section 12
plus the value of the Option Shares delivered to the Issuer for
cancellation.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive nor relieve Issuer's
obligation to pay a fee pursuant to Section 9.4 of the Merger Agreement;
provided, that if Total Profit received by Grantee would exceed $25,000,000
following the receipt of such fee, Grantee shall be obligated to comply with the
terms of Section 12(a) within 30 days of the later of (i) the date of receipt of
such fee and (ii) the date of receipt of the net cash by Grantee pursuant to the
sale of Option Shares (or any other securities into which such Option Shares are
converted or exchanged) to any unaffiliated party within 12 months of the
exercise of this Option with respect to such Option Shares.
13. FIRST REFUSAL. At any time after the first occurrence of a Triggering
Event and prior to the later of:
(a) the expiration of 14 months immediately following the first purchase
of shares of Common Stock pursuant to the Option; and
(b) the Option Expiration Date, if Grantee shall desire to sell, assign,
transfer or otherwise dispose of all or any of the Option or the shares of
Common Stock or other securities acquired by it pursuant to the Option, it shall
give Issuer written notice of the proposed transaction (an "Offeror's Notice"),
identifying the proposed transferee, accompanied by a copy of a binding offer to
purchase the Option or such shares or other securities signed by such transferee
and setting forth the terms of the proposed transaction. An Offeror's Notice
shall be deemed an offer by Grantee to Issuer, which may be accepted within 20
business days of the receipt of such Offeror's Notice, on the same terms and
conditions and at the same price at which Grantee is proposing to transfer the
Option or such shares or other securities to such transferee. The purchase of
the Option or any such shares or other securities by Issuer shall be settled
within 10 business days of the date of the acceptance of the offer and the
purchase price shall be paid to Grantee in immediately available funds; provided
that, if prior notification to or approval of any regulatory authority is
required in connection with such purchase, Issuer shall promptly file the
required notice or application for approval and shall expeditiously process the
same (and Grantee shall cooperate with Issuer in the filing of any such notice
or application and the obtaining of any such approval) and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which, as the case may be,
(1) required notification period has expired or been terminated, or
<PAGE>
(2) such approval has been obtained and, in either event, any
requisite waiting period shall have passed.
In the event of the failure or refusal of Issuer to purchase all of the Option
or all of the shares or other securities covered by an Offeror's Notice or if
any regulatory authority disapproves Issuer's proposed purchase of any portion
of the Option or such shares or other securities, Grantee may, within 60 days
from the date of the Offeror's Notice (subject to any necessary extension for
regulatory notification, approval or waiting periods), sell all, but not less
than all, of such portion of the Option or such shares or other securities to
the proposed transferee at no less than the price specified and on terms no more
favorable than those set forth in the Offeror's Notice. The requirements of
this Section 13 shall not apply to (w) any disposition as a result of which the
proposed transferee would own beneficially not more than 2% of the outstanding
voting power of Issuer, (x) any disposition of Common Stock or other securities
by a person to whom Grantee has assigned its rights under the Option with the
consent of Issuer, (y) any sale by means of a public offering registered under
the Securities Act in which steps are taken to reasonably assure that no
purchaser will acquire securities representing more than 2% of the outstanding
voting power of Issuer, or (z) any transfer to a wholly owned subsidiary of
Grantee which agrees in writing to be bound by the terms hereof.
14. VOTING. For a period of 14 months from the date of exercise of the
Option, so long as Grantee beneficially owns any Option Shares, Grantee agrees
to:
(a) be present, in person or represented by proxy, at all stockholder
meetings of Issuer, so that all Option Shares beneficially owned by holder may
be counted for the purpose of determining the presence of a quorum at such
meetings; and
(b) vote or cause to be voted all Option Shares beneficially owned by it,
with respect to all matters submitted to stockholders for a vote, in the same
proportion as shares of Common Stock are voted by stockholders unaffiliated with
Grantee.
15. APPLICATION FOR REGULATORY APPROVAL. Each of Grantee and Issuer will
use its reasonable efforts to make all filings with, and to obtain consents of,
all third parties and governmental authorities necessary to the consummation of
the transactions contemplated by this Agreement, including without limitation
making application to list the shares of Common Stock issuable hereunder on
Nasdaq's National Market System upon official notice of issuance.
16. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
17. SEPARABILITY OF PROVISIONS. If any term, provision, covenant, or
restriction, contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated.
<PAGE>
18. NOTICES. All notices, claims, demands and other communications
hereunder shall be deemed to have been duly given or made when delivered in
person, by registered or certified mail (postage prepaid, return receipt
requested), by overnight courier, or by facsimile at the respective addresses of
the parties set forth in the Merger Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. EXPENSES. Except as otherwise expressly provided herein or in the
Merger Agreement, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
22. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein. Any provision of
this Agreement may be waived only in writing at any time by the party that is
entitled to the benefits of such provision. This Agreement may not be modified,
amended, altered, or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
23. FURTHER ASSURANCES. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise. Nothing contained
in this Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
AMERICAN ONCOLOGY RESOURCES, INC.
By:
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Name:
----------------------------
Title:
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Attest:
Name:
----------------------------
Title:
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<PAGE>
PHYSICIAN RELIANCE NETWORK, INC.
By:
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Name:
----------------------------
Title:
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Attest:
Name:
----------------------------
Title:
---------------------------
<PAGE>
EXHIBIT 2.3
PARENT STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of December 11,
1998, is by and between Physician Reliance Network, Inc. ("Grantee"), and
American Oncology Resources, Inc. ("Issuer").
RECITALS
P. Grantee and Issuer, together with Diagnostic Acquisition, Inc., have
entered into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), which has been executed in connection with this Agreement
(each capitalized term used herein without definition shall have the meaning
specified in the Merger Agreement).
Q. As a condition to Grantee's entering into the Merger Agreement and in
consideration therefor, Issuer has agreed to grant to Grantee the Option (as
hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. GRANT OF OPTION. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof,
3,450,000 shares of fully paid and nonassessable common stock of the Issuer, no
par value per share ("Common Stock"), which is equal to at least 10.1% of the
number of shares of Common Stock issued and outstanding on the date hereof,
together with any associated purchase rights (the "Rights") under the Rights
Agreement, dated as of May 29, 1997, between Issuer and American Stock Transfer
& Trust Company, as Rights Agent (references to shares purchasable upon exercise
of the Option shall be deemed to include the associated Rights), as of the date
hereof at a purchase price of $13.00 per share of Common Stock, as adjusted in
accordance with the provisions of Section 5 of this Agreement (such price, as
adjusted if applicable, the "Option Price").
2. EXERCISE OF OPTION.
(a) EXERCISE. Grantee may exercise the Option, in whole or part, and from
time to time, if, but only if, a Triggering Event (as hereinafter defined) shall
have occurred prior to the occurrence of an Option Termination Event (as
hereinafter defined), provided that Grantee shall have sent the written notice
of such exercise (as provided in subsection (e) of this Section 2) on or prior
to the last date of the 14-month period following such Triggering Event ("Option
Expiration Date").
(b) OPTION TERMINATION EVENTS. The term "Option Termination Event" shall
mean any of the following events: (i) immediately prior to the Effective Time
of the Merger; (ii) termination of
<PAGE>
the Merger Agreement (other than immediately after or during the continuance of
a Triggering Event); or (iii) the last date of the 14-month period following any
termination of the Merger Agreement immediately after or during the continuance
of a Triggering Event. Notwithstanding the foregoing, the Option may not be
exercised if the Grantee is in material breach of its representation or
warranties, or in material breach of any of its covenants or agreements,
contained in this Agreement, the Parent Stock Option Agreement or the Merger
Agreement.
(c) TRIGGERING EVENTS. The term "Triggering Event" shall mean any of the
following events occurring after the date hereof: so long as the Merger
Agreement is not terminable pursuant to Section 9.1(f)(i) or Section 9.1(f)(ii)
thereof, at any time after the Merger Agreement becomes terminable pursuant to
Section 9.1(f)(iii), Section 9.1(f)(iv) or Section 9.1(e)(v) thereof (regardless
of whether the Merger Agreement is actually terminated).
(d) NOTICE OF TRIGGERING EVENT. Issuer shall notify Grantee promptly in
writing of the occurrence of any Triggering Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Grantee
to exercise the Option or for a Triggering Event to have occurred.
(e) NOTICE OF EXERCISE; CLOSING. In the event Grantee is entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if the closing of the purchase and sale pursuant to the Option
(the "Closing") cannot be consummated, in the reasonable opinion of Grantee, by
reason of any applicable judgment, decree, order, law or regulation, the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which restriction on consummation has expired or been
terminated; and provided further, without limiting the foregoing, that if, in
the reasonable opinion of Grantee, prior notification to or approval of any
regulatory agency is required in connection with such purchase, Grantee shall
promptly file the required notice or application for approval and shall
expeditiously process the same, and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto. Notwithstanding this subsection (e), in no event shall any Closing
Date be more than 14 months after the related Notice Date, and if the Closing
Date shall not have occurred within 14 months after the related Notice Date due
to the failure to obtain any such required approval, the exercise of the Option
effected on the Notice Date shall be deemed to have expired.
(f) PURCHASE PRICE. At the Closing referred to in subsection (e) above,
Grantee shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude Grantee from exercising the Option.
<PAGE>
(g) ISSUANCE OF COMMON STOCK. At the Closing, simultaneously with the
delivery of immediately available funds as provided in subsection (f) of this
Section 2, Issuer shall deliver to Grantee a certificate or certificates
representing the number of shares of Common Stock purchased by the Grantee and,
if the Option is exercised in part only, a new Option evidencing the rights of
Grantee thereof to purchase the balance of the shares purchasable hereunder, and
the Grantee shall deliver to Issuer a copy of this Agreement and a letter
agreeing that Grantee will not offer to sell or otherwise dispose of such shares
in violation of applicable law or the provisions of this Agreement. If at the
time of issuance of any Option Shares (as defined herein) pursuant to an
exercise of all or part of the Option hereunder Issuer shall not have redeemed
the Rights, or shall have issued any similar securities, then each Option Share
issued pursuant to such exercise shall also represent rights or new rights with
terms substantially the same as and at least as favorable to Grantee as are
provided under Issuer's shareholder rights agreement or any similar agreement
then in effect.
(h) LEGEND. Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer and voting of the shares represented by this certificate are
subject to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the Securities
Act of 1933, as amended. A copy of such agreement is on file at the
principal office of Issuer and will be provided to the holder hereof
without charge upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the effect
that such legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) RECORD GRANTEE; EXPENSES. Upon the giving by Grantee to Issuer of the
written notice of exercise of the Option provided for under subsection (e) of
this Section 2 and the tender of the applicable purchase price in immediately
available funds, Grantee shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
Grantee or the Issuer shall have failed or refused to designate the bank account
described in subsection (f) of this Section 2. Issuer shall pay all expenses
and any and all United States federal, state and local taxes and other charges
that may be payable in connection with the preparation, issuance and
<PAGE>
delivery of stock certificates under this Section 2 in the name of Grantee or
its assignee, transferee or designee.
3. RESERVATION OF SHARES. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock (and other securities issuable pursuant to
Section 5(a)) so that the Option may be exercised without additional
authorization of Common Stock (or such other securities) after giving effect to
all other options, warrants, convertible securities and other rights to purchase
Common Stock (or such other securities); (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Issuer; (iii) promptly to take all action as
may from time to time be required (including without limitation complying with
all premerger notification, reporting and waiting periods under the HSR Act) in
order to permit Grantee to exercise the Option and Issuer duly and effectively
to issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of Grantee against dilution.
4. DIVISION OF OPTION; LOST OPTIONS. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and
"Option" as used herein include any Stock Option Agreements and related Options
for which this Agreement (and the Option granted hereby) may be exchanged. Upon
receipt by Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, Issuer will execute and deliver a
new Agreement of like tenor and date. Any such new Agreement executed and
delivered shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The number of shares of
Common Stock purchasable upon the exercise of the Option shall be subject to
adjustment from time to time as provided in this Section 5.
(a) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date hereof (an "Increase"), the number
of shares of Common Stock subject to the Option shall be increased so that the
number of shares issuable upon exercise of the Option shall be equal to the
product of (A) the percentage of the outstanding Common Stock for which the
Option was exercisable immediately prior to the Increase and (B) the number of
shares of Common Stock outstanding immediately after the Increase; provided that
the number of shares of Common Stock subject to the Option shall in no event
exceed 10.1% of the issued and outstanding shares of Common Stock immediately
prior to exercise.
<PAGE>
(b) In the event of any change in Common Stock by reason of stock
dividends, splits, mergers, recapitalization, combinations, subdivisions,
conversions, exchanges of shares or other similar transactions and no adjustment
is required pursuant to the terms of Section 5(a), then the type and number of
shares of Common Stock purchasable upon exercise hereof shall be appropriately
adjusted so that Grantee shall receive upon exercise of the Option and payment
of the aggregate Option Price hereunder the number and class of shares or other
securities or property that Grantee would have received in respect of Common
Stock if the Option had been exercised in full immediately prior to such event,
or the record date therefor, as applicable.
(c) Whenever the number of shares of Common Stock changes after the date
hereof, the Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which shall be equal to the aggregate number of
shares of Common Stock purchasable prior to the adjustment and the denominator
of which shall be equal to the aggregate number of shares of Common Stock
purchasable immediately after the adjustment.
6. REGISTRATION RIGHTS. Upon the occurrence of a Triggering Event that
occurs prior to an Option Termination Event, Issuer shall, at the request of
Grantee, deliver at any time on or prior to the Option Expiration Date (whether
on its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the
Securities Act covering any shares issued and issuable pursuant to this Option
and shall use its best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
any shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its best efforts to cause such registration statement
first to become effective and then to remain effective for such period not in
excess of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary to effect such
sales or other dispositions. Grantee for a period of 14 months following such
first request shall have the right to demand a second such registration if
reasonably necessary to effect such sales or dispositions. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the
Grantee's Option or Option Shares would interfere with the successful marketing
of the shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced; and provided, however, that after any such required reduction the
number of Option Shares to be included in such offering for the account of
Grantee shall constitute at least 25% of the total number of shares to be sold
by Grantee and Issuer in the aggregate; and provided further, however, that if
such reduction occurs, then the Issuer shall file a registration statement for
the balance as promptly as practicable and no reduction shall thereafter occur
(and such registration shall not be charged against Grantee). Grantee shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any Grantee in
connection with such
<PAGE>
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from Grantee, Issuer agrees to send a
copy thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies.
7. REPURCHASE OF OPTION AND OPTION SHARES.
(a) Within ten business days following the occurrence of a Repurchase
Event (as defined below), Issuer shall (i) deliver an offer (a "Repurchase
Offer") to repurchase the Option from Grantee at a price (the "Option Repurchase
Price") equal to the amount by which (A) the Acquisition Proposal Price (as
defined below) exceeds (B) the Option Price, multiplied by the number of shares
for which the Option may then be exercised, and (ii) deliver an offer (also, a
"Repurchase Offer") to repurchase the Option Shares from each owner of Option
Shares (excluding such Option Shares as have been publicly distributed prior to
the delivery of the Repurchase Offer) from time to time (each, an "Owner") at a
price (the "Option Share Repurchase Price") equal to the Acquisition Proposal
Price multiplied by the number of Option Shares then held by such Owner. The
term "Acquisition Proposal Price" shall mean, as of any date for the
determination thereof, the price per share of Common Stock paid pursuant to the
Acquisition Proposal (as defined in the Merger Agreement) or, in the event of a
sale of assets of Issuer, the last per-share sale price of Common Stock on the
fourth trading day following the announcement of such sale. If the
consideration paid or received in the Acquisition Proposal shall be other than
in cash, the value of such consideration shall be determined by a nationally
recognized investment banking firm selected by Grantee, which determination
shall be conclusive for all purposes of this Agreement.
(b) Upon the occurrence of a Repurchase Event and whether or not Issuer
shall have made a Repurchase Offer under Section 7(a), (i) at the request (the
date of such request being the "Option Repurchase Request Date") of Grantee
delivered prior to the Option Expiration Date, Issuer shall repurchase the
Option from Grantee at the Option Repurchase Price, and (ii) at the request (the
date of such request being the "Option Share Repurchase Request Date") of any
Owner delivered prior to the Option Expiration Date, Issuer shall repurchase
such number of the Option Shares from the Owner as the Owner shall designate at
the Option Share Repurchase Price.
(c) Grantee and/or the Owner, as the case may be, may accept Issuer's
Repurchase Offer under Section 7(a) or may exercise its right to require Issuer
to repurchase the Option and/or any Option Shares pursuant to Section 7(b) by a
written notice or notices stating that Grantee or the Owner, as the case may be,
elects to accept such offer or to require Issuer to repurchase the Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days, after the
surrender to it of this Agreement and/or Certificates for Option Shares, as
applicable, following receipt of a notice under this Section 7(c) and the
occurrence of a Repurchase Event, Issuer
<PAGE>
shall deliver or cause to be delivered to Grantee the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price and/or the portion thereof
that Issuer is not then prohibited from so delivering under applicable law.
(d) Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish any repurchase contemplated by
this Section 7. Nonetheless, to the extent that Issuer is prohibited under
applicable law from repurchasing the Option and/or any Option Shares in full,
Issuer shall immediately so notify Grantee and/or the Owner and thereafter
deliver or cause to be delivered, from time to time, to Grantee and/or the
Owner, as appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to Section 7(c) is prohibited under
applicable law, from delivering to Grantee and/or the Owner, as appropriate, the
Option Repurchase Price or the Option Share Repurchase Price, respectively, in
full, Grantee or the Owner, as appropriate, may revoke its notice of repurchase
of the Option or the Option Shares either in whole or in part whereupon, in the
case of a revocation in part, Issuer shall promptly (i) deliver to Grantee
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering
after taking into account any such revocation and (ii) deliver, as appropriate,
either (a) to Grantee, a new Agreement evidencing the right of Grantee to
purchase that number of shares of Common Stock equal to the number of shares of
Common Stock purchasable immediately prior to the delivery of the notice of
repurchase less the number of shares of Common Stock covered by the portion of
the Option repurchased or (b) to the Owner, a certificate for the number of
Option Shares covered by the revocation. If an Option Termination Event shall
have occurred prior to the date of the notice by Issuer described in the second
sentence of this subsection (d), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
Grantee shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period.
(e) The term "Repurchase Event" shall mean a Triggering Event followed by
the earlier of the signing of a definitive agreement to consummate or the
consummation of any transaction or event included in the definition of
Acquisition Proposal.
(f) Notwithstanding anything to the contrary in Sections 2(a) and 2(e),
the delivery of a notice by Grantee under Section 7(c) specifying that such
notice relating to an anticipated Repurchase Event is based on the Issuer's
public announcement of the execution of an agreement providing for the
consummation of an Acquisition Proposal shall be deemed to constitute an
election to exercise the Option as to the number of Option Shares not heretofore
purchased pursuant to one or more prior exercises of the Option on the fifth
business day following the public announcement of the consummation of the
transaction contemplated by such agreement, in which event a closing shall occur
with respect to such unpurchased Option
<PAGE>
Shares in accordance with Section 2(e) on such fifth business day (or such later
date as determined pursuant to the provisos in the first sentence of Section
2(e)).
8. SUBSTITUTE OPTION IN THE EVENT OF CORPORATE CHANGE.
(a) In the event that prior to an Option Termination Event, Issuer shall
enter into an agreement (i) to consolidate with or merge into any person, other
than Grantee or one of its subsidiaries, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then-outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then-outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Grantee, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer
(if other than Issuer), (ii) Issuer in a merger in which Issuer
is the continuing or surviving person, and (iii) the transferee
of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the
Substitute Option.
(3) "Assigned Value" shall mean the Acquisition Proposal Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in
no event higher than the closing price of the shares of
Substitute Common Stock on the day preceding such consolidation,
merger or sale; provided, that if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person merging
into Issuer or by any company which controls or is controlled by
such person, as Grantee may elect.
<PAGE>
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Grantee. The issuer of the Substitute Option shall
also enter into an agreement with Grantee in substantially the same form as this
Agreement, which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 10.1% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 10.1% of the
shares of the Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option shall make a cash payment to
Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e).
This difference in value shall be determined by a nationally recognized
investment banking firm selected by Grantee.
(f) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. EXTENSION OF TIME FOR REGULATORY APPROVALS. The 14-month period for
exercise of certain rights under Sections 2, 6, 7, 13 and 14 shall be extended:
(i) to the extent necessary to obtain all regulatory approvals for the exercise
of such rights, and for the expiration of all statutory waiting periods; and
(ii) to the extent necessary to avoid liability under Section 10(b) of the
Exchange Act by reason of such exercise.
10. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. Issuer hereby
represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly
<PAGE>
executed and delivered by Issuer. This Agreement is the valid and legally
binding obligation of Issuer, enforceable against Issuer in accordance with its
terms.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests, and not subject to any preemptive rights.
(c) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation pursuant to any provisions of the Articles of
Incorporation or by-laws of Issuer or any Issuer subsidiary, subject to
obtaining any approvals or consents contemplated hereby, result in any violation
of any loan or credit agreement, note, mortgage, indenture, lease, plan, or
other agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Issuer or any Issuer subsidiary or their respective properties or assets
which violation would have, individually or in the aggregate, a Material Adverse
Effect on the Issuer.
11. ASSIGNMENT OF OPTION BY GRANTEE. Neither of the parties hereto may
assign any of its rights or obligations under this Option Agreement or the
Option created hereunder to any other person, without the express written
consent of the other party.
12. LIMITATION OF GRANTEE PROFIT.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $25,000,000
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (i) reduce the number of shares of Common Stock subject
to this Option, (ii) deliver to the Issuer for cancellation Option Shares
previously purchased by Grantee, (iii) pay cash to the Issuer, or (iv) any
combination thereof, so that Grantee's actually realized Total Profit shall not
exceed $25,000,000 after taking into account the foregoing actions.
(b) As used herein, the term "Total Profit" shall mean the amount (before
taxes) of the following:
(1) the aggregate amount of (i) (x) the net cash amounts received by
Grantee pursuant to the sale of Option Shares (or any other
securities into which such Option Shares are converted or
exchanged) to any unaffiliated party within 12 months from the
exercise of this Option with respect to such
<PAGE>
Option Shares, less (y) the Grantee's purchase price of such
Option Shares, (ii) any amounts received by Grantee on the
transfer of the Option (or any portion thereof) to any
unaffiliated party, if permitted hereunder, (iii) any equivalent
amount with respect to the Substitute Option, and (iv) the amount
received by Grantee pursuant to Section 9.4 of the Merger
Agreement; minus
(2) the amount of cash paid to the Issuer pursuant to this Section 12
plus the value of the Option Shares delivered to the Issuer for
cancellation.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive nor relieve Issuer's
obligation to pay a fee pursuant to Section 9.4 of the Merger Agreement;
provided, that if Total Profit received by Grantee would exceed $25,000,000
following the receipt of such fee, Grantee shall be obligated to comply with the
terms of Section 12(a) within 30 days of the later of (i) the date of receipt of
such fee and (ii) the date of receipt of the net cash by Grantee pursuant to the
sale of Option Shares (or any other securities into which such Option Shares are
converted or exchanged) to any unaffiliated party within 12 months of the
exercise of this Option with respect to such Option Shares.
13. FIRST REFUSAL. At any time after the first occurrence of a Triggering
Event and prior to the later of:
(a) the expiration of 14 months immediately following the first purchase
of shares of Common Stock pursuant to the Option; and
(b) the Option Expiration Date, if Grantee shall desire to sell, assign,
transfer or otherwise dispose of all or any of the Option or the shares of
Common Stock or other securities acquired by it pursuant to the Option, it shall
give Issuer written notice of the proposed transaction (an "Offeror's Notice"),
identifying the proposed transferee, accompanied by a copy of a binding offer to
purchase the Option or such shares or other securities signed by such transferee
and setting forth the terms of the proposed transaction. An Offeror's Notice
shall be deemed an offer by Grantee to Issuer, which may be accepted within 20
business days of the receipt of such Offeror's Notice, on the same terms and
conditions and at the same price at which Grantee is proposing to transfer the
Option or such shares or other securities to such transferee. The purchase of
the Option or any such shares or other securities by Issuer shall be settled
within 10 business days of the date of the acceptance of the offer and the
purchase price shall be paid to Grantee in immediately available funds; provided
that, if prior notification to or approval of any regulatory authority is
required in connection with such purchase, Issuer shall promptly file the
required notice or application for approval and shall expeditiously process the
same (and Grantee shall cooperate with Issuer in the filing of any such notice
or application and the obtaining of any such approval) and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which, as the case may be,
(1) required notification period has expired or been terminated, or
<PAGE>
(2) such approval has been obtained and, in either event, any
requisite waiting period shall have passed.
In the event of the failure or refusal of Issuer to purchase all of the Option
or all of the shares or other securities covered by an Offeror's Notice or if
any regulatory authority disapproves Issuer's proposed purchase of any portion
of the Option or such shares or other securities, Grantee may, within 60 days
from the date of the Offeror's Notice (subject to any necessary extension for
regulatory notification, approval or waiting periods), sell all, but not less
than all, of such portion of the Option or such shares or other securities to
the proposed transferee at no less than the price specified and on terms no more
favorable than those set forth in the Offeror's Notice. The requirements of
this Section 13 shall not apply to (w) any disposition as a result of which the
proposed transferee would own beneficially not more than 2% of the outstanding
voting power of Issuer, (x) any disposition of Common Stock or other securities
by a person to whom Grantee has assigned its rights under the Option with the
consent of Issuer, (y) any sale by means of a public offering registered under
the Securities Act in which steps are taken to reasonably assure that no
purchaser will acquire securities representing more than 2% of the outstanding
voting power of Issuer, or (z) any transfer to a wholly owned subsidiary of
Grantee which agrees in writing to be bound by the terms hereof.
14. VOTING. For a period of 14 months from the date of exercise of the
Option, so long as Grantee beneficially owns any Option Shares, Grantee agrees
to:
(a) be present, in person or represented by proxy, at all stockholder
meetings of Issuer, so that all Option Shares beneficially owned by holder may
be counted for the purpose of determining the presence of a quorum at such
meetings; and
(b) vote or cause to be voted all Option Shares beneficially owned by it,
with respect to all matters submitted to stockholders for a vote, in the same
proportion as shares of Common Stock are voted by stockholders unaffiliated with
Grantee.
15. APPLICATION FOR REGULATORY APPROVAL. Each of Grantee and Issuer will
use its reasonable efforts to make all filings with, and to obtain consents of,
all third parties and governmental authorities necessary to the consummation of
the transactions contemplated by this Agreement, including without limitation
making application to list the shares of Common Stock issuable hereunder on
Nasdaq's National Market System upon official notice of issuance.
16. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
17. SEPARABILITY OF PROVISIONS. If any term, provision, covenant, or
restriction, contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated.
<PAGE>
18. NOTICES. All notices, claims, demands and other communications
hereunder shall be deemed to have been duly given or made when delivered in
person, by registered or certified mail (postage prepaid, return receipt
requested), by overnight courier, or by facsimile at the respective addresses of
the parties set forth in the Merger Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. EXPENSES. Except as otherwise expressly provided herein or in the
Merger Agreement, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
22. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein. Any provision of
this Agreement may be waived only in writing at any time by the party that is
entitled to the benefits of such provision. This Agreement may not be modified,
amended, altered, or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
23. FURTHER ASSURANCES. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise. Nothing contained
in this Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
AMERICAN ONCOLOGY RESOURCES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Attest:
Name:
---------------------------
Title:
--------------------------
<PAGE>
PHYSICIAN RELIANCE NETWORK, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Attest:
Name:
---------------------------
Title:
--------------------------
<PAGE>
EXHIBIT 99.1
News Release . . . .
FOR: American Oncology Resources, Inc.
CONTACT: L. Fred Pounds
Vice President, Finance
281/873-2674
FOR IMMEDIATE RELEASE Robert P. Jones/Jill Ruja
Stacy Berns - Media Contact
Morgen-Walke Associates
212/850-5600
FOR: Physician Reliance Network, Inc.
CONTACT: Michael Murdock
Executive Vice President and
Chief Financial Officer
972/392-8728
AMERICAN ONCOLOGY RESOURCES AND PHYSICIAN RELIANCE
NETWORK ANNOUNCE DEFINITIVE MERGER AGREEMENT
-CREATES THE PREEMINENT CANCER MANAGEMENT COMPANY-
Houston and Dallas, Texas, December 14, 1998--American Oncology Resources,
Inc. (Nasdaq: AORI) and Physician Reliance Network, Inc. (Nasdaq. PHYN)
announced today that they have signed a definitive agreement to merge in a
stock-for-stock transaction. The new company will be the leader in cancer
management with over 700 physicians treating approximately 13% of all new cancer
cases in the United States. Following completion of the transaction, the new
company will operate a network of 44 cancer centers in 24 states and have
annualized revenues of approximately $868 million, assets of $980 million and an
enterprise value of over $1.5 billion.
Under the terms of the agreement, which has been unanimously approved by the
Board of Directors of both companies, holders of PRN common stock will receive a
fixed ratio of 0.94 shares of common stock of AOR for each PRN share held. As a
result, AOR and PRN
Morgan . Walke Investor Relations and
ASSOCIATES INC Corporate Communications
[Letterhead appears here]
<PAGE>
Page: 2
shareholders will each own approxiamtely 50% of the combined comapny, which will
be headquaartered in Houston, Texas. Based on AOR's closing price on December
11, 1998, the transaction in valued at approximately $715 million including the
assumption of approximately $60 million of debt. Following the completion of the
merger, R. Dale Ross, Chairman and CEO of AOR, will be the Chairman and CEO of
the combined company and John T. Casey, the Chairman and CEO of PRN, will become
a member of the new company's Board of Directors, which will consist of seven
member from AOR and seven from PRN. The new management team will also include
Lloyd K. Everson, M.D., President; O. Edwin French, COO; L. Fred Pounds, CFO;
Joseph S. Bailes, M.D., Executive Vice President; David Chernow, Chief
Development Officer; and Leo Sands, Chief Compliance Officer. The transaction is
expected to be accounted for as a pooling of interests and to be treated as a
tax-free exchange. Closing of the transaction is anticipated in the second
quarter of 1999, subject to shareholder approval of both companies, appropriate
governmental approval and other customary conditions. The transaction is
expected to be modestly accretive to AOR's earnings per share in 1999 and beyond
before giving effect to non-recurring charges relating to the transaction in
1999.
Mr. Ross commented, "We are excited about this transaction as it brings
together the two leading oncology management companies creating a significant
force in the fight against cancer. Together, we will have the critical mass
needed to optimize our strategic initiatives which include outpatient cancer
center development, clinical research activities and disease management
partnership programs. Both companies have demonstrated an ability to identify
and successfully affiliate with premier oncologists, bringing increased value to
their existing networks while achieving strong same-market performance."
Mr. Casey said, "The combination of the two organizations is a natural
extension of both companies' growth strategies. The new company's expertise in
operating outpatient cancer centers and conducting clinical research will allow
us to continue to attract and recruit high-quality physicians and employees. The
714 physicians brought together in this combination consist of some of the most
influential clinicians and scientists within the oncology specialty. Equally as
important, the merger creates opportunities for the most cost-effecient delivery
system that will benefit our payors, patients, as well as our shareholders."
<PAGE>
Page: 3
In connection with the merger agreement, AOR and PRN mutually have granted
each other an option to purchase up to 10.1% of the other's common stock,
exercisable under certain circumstances. In the event that the merger is
terminated by either company, AOR and PRN have agreed that, in certain
circumstances, a cash termination fee will be paid.
AOR provides comprehensive management services to 358 physicians practicing
in 18 states and owns and operates 16 outpatient cancer centers in its markets.
PRN manages the practices of 356 physicians in 12 states, including 28
outpatient cancer centers.
BT Alex. Brown Incorporated acted as financial advisor to AOR and Goldman,
Sachs & Co. acted as financial advisor to PRN.
This press release contains forward-looking statements. All statements
other than statements of historical fact included in this press release are
forward-looking statements. Although each Company believes that the expectations
reflected in such statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Closing of the proposed
transaction is subject to a number of conditions, in addition, please refer to
each companies SEC filings for other factors that could cause actual results to
differ materially from each Company's expectations.
<PAGE>
Page: 4
AOR/PRN MERGER
FACT SHEET
COMBINED COMPANY HIGHLIGHTS:
. Approximately 700 affiliated physicians, comprising approximately 11% of
oncologists in the U.S.
. 306 sites of service and 44 cancer centers in 24 states.
. Treat approximately 13% of new cancer cases in the U.S.
. $868 million in annualized revenue (third quarter annualized).
. $165 million in annualized EBITDA (third quarter annualized).
TERMS OF THE MERGER:
. AOR shareholders and PRN shareholders will each own 50% of the combined
company.
. Each PRN share will convert into 0.94 shares of AOR common stock, resulting in
the issuance of approximately 50 million AOR shares.
. Transaction valued at approximately $715 million, including $60 million in
assumed PRN debt.
. Transaction expected to be accounted for as a pooling of interests and a
tax-free exchange.
. AOR and PRN have granted each other an option to purchase up to 10.1% of the
other's common stock, exercisable under certain circumstances.
KEY OPERATING STATISTICS
AOR PRN Combined
--- --- --------
Physicians:
Medical Oncologists 309 257 566
Radiation Oncologists 41 46 87
Other 8 53 61
--- --- ---
Total 358 356 714
Sites of Service 192 114 306
Cancer Centers 16 28 44
Markets 27 20 44
States 18 12 24
RUN-RATE FINANCIALS (THIRD QUARTER ANNUALIZED--IN MILLIONS):
Net Revenues $473 $395 $868
EBITDA 87 78 165
Income 30 30 60
