<PAGE>
Registration No. 333-
As filed with the Securities and Exchange Commission on May 10, 1999
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN ONCOLOGY RESOURCES, INC.
(Exact name of registrant as specified in its charter)
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Delaware 8099 84-1213501
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification No.)
of incorporation or Classification Code Number)
organization)
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16825 Northchase Drive, Suite 1300
Houston, Texas 77060
(281) 873-2674
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Phillip H. Watts
16825 Northchase Drive, Suite 1300
Houston, Texas 77060
(281) 873-2674
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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Diana M. Hudson and B. Scott Aitken Cynthia Y. Reisz
Mayor, Day, Caldwell & Keeton, L.L.P. Bass, Berry & Sims PLC
700 Louisiana, Suite 1900 2700 First American Center
Houston, Texas 77002 Nashville, Tennessee 37238
(713) 225-7000 (615) 742-6200
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement and the
satisfaction or waiver of all other conditions to the merger (the "Merger") of
Diagnostic Acquisition, Inc. ("Merger Sub") with and into Physician Reliance
Network, Inc. ("PRN") pursuant to the Agreement and Plan of Merger dated as of
December 11, 1998, among the Registrant, Merger Sub and PRN, described in the
enclosed Joint Proxy Statement and Prospectus.
If the securities being registered on the Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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Title of each class of Proposed maximum
securities to be Amount to be Proposed maximum aggregate offering Amount of
registered registered(1) offering price per share(2) price(2) registration fee
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Common Stock,
$.01 par value(3) 50,000,000 shares $8.60 $430,000,000 $119,540(4)
</TABLE>
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(1) Based upon the Registrant's estimate of the maximum number of shares of the
Registrant's common stock that will be issued in connection with the
Merger.
(2) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(f). Calculated pursuant to Rule 457(f) based upon
the average of the high and low sale prices for shares of the Registrant's
common stock on The Nasdaq Stock Market on May 7, 1999.
(3) Including associated Series A Preferred Stock Purchase Rights.
(4) Pursuant to Rule 457(b), the calculated fee of $119,540 is exceeded by the
fee of $141,520 paid in connection with the Joint Proxy Statement and
Prospectus of the Registrant and PRN filed with the Securities and Exchange
Commission on January 19, 1999. Therefore no fee is submitted herewith.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
[AOR LOGO
APPEARS HERE] [PRN LOGO APPEARS HERE]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Consider carefully the The merger--
Risk Factors beginning
on page 17. . The boards of directors of American Oncology
Resources, Inc. and Physician Reliance
Neither the Securities Network, Inc. have unanimously approved a
and Exchange Commission strategic combination of the two companies
nor any state securities designed to create the leading cancer
commission has approved management company in the United States.
or disapproved of these
securities or passed . In connection with the merger, the continuing
upon the adequacy or ac- company will be renamed US Oncology, Inc. In
curacy of this document. the merger, 0.94 shares of AOR common stock
Any representation to will be issued in exchange for each share of
the contrary is a crimi- PRN common stock. The existing AOR common
nal offense. stock will remain outstanding, and each share
will represent one share of the combined
AOR common stock trading company.
symbol: The Nasdaq Na-
tional Market(R)--"AORI" . Based upon the capitalization of AOR and PRN
as of May 10, 1999, we anticipate that
PRN common stock trading approximately 85,700,000 shares of the
symbol: The Nasdaq Na- combined company's common stock will be
tional Market(R)--"PHYN" outstanding after the merger is completed.
Immediately after the merger, on a fully
diluted basis, approximately 50% of the
combined company's common stock will be owned
by stockholders of PRN, and approximately 50%
of the combined company's common stock will
be owned by stockholders of AOR.
We cannot complete the merger unless the stockholders of both companies
approve certain proposals relating to the merger. AOR stockholders will vote on
these matters at their annual meeting, and PRN has scheduled a special meeting
for this purpose.
This joint proxy statement and prospectus provides you with detailed
information about the proposed merger. We encourage you to read this document
carefully. In addition, you may obtain information about our companies from
documents that we have filed with the Securities and Exchange Commission.
The boards of directors of both companies have determined that the merger is
in the best interests of their stockholders. Your board unanimously recommends
voting FOR the matters presented to you at your meeting. We strongly support
the merger and join with members of our boards of directors in enthusiastically
recommending that you vote in favor of the merger and related matters.
R. Dale Ross John T. Casey
Chairman of the Board Chairman of the Board
and Chief Executive Officer and Chief Executive Officer
American Oncology Resources, Inc. Physician Reliance Network, Inc.
This joint proxy statement and prospectus is dated May 10, 1999 and first
mailed to stockholders on May 14, 1999.
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
16825 NORTHCHASE DRIVE, SUITE 1300
HOUSTON, TEXAS 77060
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 1999
To the Stockholders of American Oncology Resources, Inc.:
Notice is hereby given that the annual meeting of stockholders of American
Oncology Resources, Inc. will be held at the Marriott Rivercenter, 101 Bowie
Street, San Antonio, Texas 78205 on Tuesday, June 15, 1999 at 8:00 a.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of up to
50,000,000 shares of common stock of AOR (together with associated Series A
Preferred Stock Purchase Rights) to stockholders of PRN in connection with
the merger of PRN into a wholly-owned subsidiary of AOR.
2. To approve AOR's amended and restated certificate of incorporation,
which amends AOR's existing certificate of incorporation:
. to change AOR's name to US Oncology, Inc.,
. to increase the authorized shares of AOR common stock from
80,000,000 to 250,000,000 and the authorized shares of AOR
preferred stock from 1,000,000 to 2,000,000,
. to divide the AOR board of directors into three classes, with
each class serving a staggered three-year term (except,
initially, Class I and Class II directors), to provide that
directors may be removed only for cause and then only upon the
vote of holders of at least two-thirds of the outstanding shares
of AOR common stock and to specify a mechanism for nominating
directors,
. to provide that stockholders may only act at a properly convened
annual meeting or special meeting of stockholders and specify
who may call a stockholders' meeting and
. to provide that certain provisions of AOR's amended and restated
certificate of incorporation may only be amended by the vote of
two-thirds of the outstanding shares of capital stock of AOR
entitled to vote in the election of directors.
The amended and restated certificate of incorporation will be effective
only if the merger is completed.
3. To approve an amendment to AOR's 1993 Affiliate Stock Option Plan to
increase the number of shares of AOR common stock available for issuance
under that plan. The amendment will be effective only upon completion of
the merger.
4. To approve amendments to AOR's 1993 Non-Employee Director Stock
Option Plan to increase the number of shares of AOR common stock available
for issuance under that plan and to make other changes to that plan. The
amendments will be effective only upon completion of the merger.
5. To elect seven members of the board of directors of AOR to serve as
directors for the respective terms set forth herein.
6. To approve an amendment to AOR's 1993 Key Employee Stock Option Plan
to increase the number of shares of AOR common stock available for issuance
under that plan.
7. To ratify the appointment of PricewaterhouseCoopers LLP as AOR's
independent accountants for the current year.
8. To transact such other business as may be properly brought before the
meeting or any adjournment or postponement of the annual meeting.
Approval of items 1-4 above is a condition to the merger. Only stockholders
of record at the close of business on May 10, 1999 are entitled to notice of
and to vote on all matters at the annual meeting. The annual meeting may be
postponed or adjourned from time to time, and at any reconvened meeting actions
with respect to the matters specified in this notice may be taken without
further notice to stockholders unless required by the bylaws of AOR.
Whether or not you intend to be present at the annual meeting, please sign
and date the enclosed proxy and return it in the enclosed prepaid envelope. If
you attend the annual meeting, you may vote either in person or by your proxy.
A proxy may be revoked by a stockholder at any time prior to its use as
specified in the enclosed proxy statement. Sending in a signed proxy will not
affect your right to attend the annual meeting and vote in person.
By Order of the Board of Directors,
Leo E. Sands
Corporate Secretary
Houston, Texas
May 10, 1999
<PAGE>
PHYSICIAN RELIANCE NETWORK, INC.
5420 LBJ FREEWAY, SUITE 900
DALLAS, TEXAS 75240
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 1999
To the Stockholders of Physician Reliance Network, Inc.:
Notice is hereby given and you are invited to attend in person or by proxy a
special meeting of stockholders of Physician Reliance Network, Inc. to be held
at the Marriott Rivercenter, 101 Bowie Street, San Antonio, Texas 78205 on
Tuesday, June 15, 1999 at 8:00 a.m., local time, for the following purposes:
1. To approve the Agreement and Plan of Merger, dated as of December 11,
1998, among American Oncology Resources, Inc., Diagnostic Acquisition,
Inc., a wholly owned subsidiary of AOR, and PRN; and
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
The proposed merger and other related matters are more fully described in
the attached joint proxy statement and prospectus and the appendices thereto.
The board of directors has fixed the close of business on May 10, 1999 as
the record date for the determination of stockholders entitled to notice of and
to vote at the special meeting and any adjournment or postponement thereof.
Only stockholders of record of PRN common stock at the close of business on the
record date are entitled to notice of and to vote at the special meeting.
You are cordially invited to attend the special meeting. Whether or not you
expect to attend the special meeting, management desires to have the maximum
representation at the special meeting and respectfully requests that you date,
execute and mail promptly the enclosed proxy in the enclosed stamped envelope.
A proxy may be revoked by a stockholder at any time prior to its use as
specified in the enclosed proxy statement. Sending in a signed proxy will not
affect your right to attend the special meeting and vote in person.
By Order of the Board of Directors,
George P. McGinn, Jr.
Corporate Secretary
Dallas, Texas
May 10, 1999
<PAGE>
TABLE OF CONTENTS
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SUMMARY................................................................... 1
RISK FACTORS.............................................................. 17
AOR ANNUAL MEETING........................................................ 24
PRN SPECIAL MEETING....................................................... 28
THE MERGER................................................................ 30
General Description of the Merger....................................... 30
Background of the Merger................................................ 30
Joint Reasons for the Merger............................................ 33
AOR's Reasons for the Merger............................................ 34
Recommendation of the Board of Directors of AOR......................... 36
PRN's Reasons for the Merger............................................ 36
Recommendation of the Board of Directors of PRN......................... 38
Opinion of AOR's Financial Advisor...................................... 38
Opinion of PRN's Financial Advisor...................................... 43
Some Officers, Directors and Significant Stockholders of PRN Have
Interests in the Merger Other Than as Stockholders..................... 50
Material Federal Income Tax Consequences of the Merger to PRN
Stockholders........................................................... 52
We Anticipate That the Merger Will Be Treated as a Pooling of Interests
for Accounting Purposes................................................ 53
Government and Regulatory Approvals Are Required to Complete the
Merger................................................................. 54
Resales of AOR Common Stock Received in the Merger by Affiliates of PRN
Will Be Subject to Restrictions........................................ 54
Management and Operations of the Combined Company Following the Merger.. 54
Amendment of PRN Rights Agreement....................................... 55
Stock Exchange Listing; Delisting and Deregistration of PRN Common
Stock.................................................................. 55
THE AGREEMENT AND PLAN OF MERGER AND TERMS OF THE MERGER.................. 56
Effective Time of the Merger............................................ 56
Manner and Basis for Converting Shares.................................. 56
Treatment of PRN Stock Options and Other Rights to Receive PRN Common
Stock.................................................................. 56
Conditions to the Merger................................................ 57
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Cooperation............................................................ 59
Representations and Warranties of AOR and PRN.......................... 59
Conduct of the Business of AOR and PRN Prior to the Merger............. 59
AOR and PRN Have Agreed not to Solicit Acquisition Transactions........ 60
The Merger Agreement May Be Terminated Under Certain Conditions........ 61
The Merger Agreement May Be Amended.................................... 62
Termination Fees May Be Payable by AOR or PRN in Certain
Circumstances......................................................... 62
AOR and PRN Have Agreed on Which Will Pay Certain Expenses............. 62
AOR Has Agreed to Indemnify Officers and Directors of PRN.............. 62
AOR and PRN Have Entered Into Stock Option Agreements.................. 63
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........................ 65
COMPARATIVE RIGHTS OF STOCKHOLDERS OF AOR AND PRN........................ 72
PRINCIPAL STOCKHOLDERS OF AOR AND PRN.................................... 78
DESCRIPTION OF AOR CAPITAL STOCK......................................... 81
PROPOSAL 2: ADOPTION OF AOR'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION........................................................... 84
PROPOSAL 3: APPROVAL OF AMENDMENT TO 1993 AFFILIATE STOCK OPTION PLAN.... 87
PROPOSAL 4: APPROVAL OF AMENDMENTS TO 1993 NON-EMPLOYEE DIRECTOR STOCK
OPTION PLAN............................................................. 88
PROPOSAL 5: ELECTION OF AOR DIRECTORS.................................... 91
PROPOSAL 6: APPROVAL OF AMENDMENT TO 1993 KEY EMPLOYEE STOCK OPTION
PLAN.................................................................... 95
PROPOSAL 7: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS....... 96
COMPENSATION OF EXECUTIVE OFFICERS....................................... 97
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 102
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TABLE OF CONTENTS
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INDEPENDENT ACCOUNTANTS.................................................... 103
LEGAL MATTERS.............................................................. 103
EXPERTS.................................................................... 103
PROPOSALS OF STOCKHOLDERS FOR ANNUAL MEETING............................... 104
OTHER MATTERS.............................................................. 104
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Appendix A--Agreement and Plan of Merger.................................. A-1
Appendix B--Stock Option Agreement........................................ B-1
Appendix C--Opinion of BT Alex. Brown Incorporated........................ C-1
Appendix D--Opinion of Goldman, Sachs & Co................................ D-1
Appendix E--Form of Amended and Restated Certificate of Incorporation..... E-1
</TABLE>
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
understanding of the merger, you should carefully read this entire document as
well as the additional documents we refer to in this joint proxy statement and
prospectus. See "Where You Can Find More Information" immediately following
this summary.
Please keep in mind that references to "we" and "us" mean AOR and PRN as a
combined entity following the merger.
Questions and Answers About the AOR/PRN Merger
Q: How will AOR and PRN combine?
A: PRN will merge with a subsidiary of AOR. PRN will be the surviving
corporation in the merger and will become a direct wholly owned subsidiary of
AOR.
Q: What will happen to the stock of PRN in the merger?
A: In the merger, PRN stockholders will receive 0.94 shares of AOR common
stock in exchange for each share of PRN common stock
owned by them. Cash will be paid for fractional shares of AOR common stock.
Q: What will happen to the stock of AOR in the merger?
A: Shares of AOR stock will remain outstanding. Each share of AOR common
stock will represent one share of common stock of the combined company.
Q: When will the merger be completed?
A: AOR and PRN expect that the merger will become effective promptly after
stockholders of PRN approve and adopt the merger agreement and stockholders of
AOR approve the issuance of the shares of AOR common stock to be delivered in
connection with the merger, provided that the other conditions to the merger
have been satisfied. The stockholders meetings of both AOR and PRN are
scheduled for June 15, 1999.
Q: What should I do after I read these documents?
A: You should mail your signed proxy card in the enclosed postage paid
envelope, as soon as possible, so that your shares will be represented at your
stockholders' meeting. After the merger is completed, PRN stockholders will be
sent written instructions for sending in their share certificates and receiving
the shares of AOR common stock to which they are entitled. DO NOT SEND IN YOUR
PRN STOCK CERTIFICATES NOW.
Q: Can I change my vote after I have mailed a signed proxy card?
A: Yes. You can change your vote in one of the following ways at any time
before your proxy is voted at the stockholders' meetings: (1) you can revoke
your proxy by written notice; (2) you can submit a new, later-dated proxy card;
and (3) you can attend your stockholders' meeting and vote in person.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. Without instructions your shares will not be voted. Shares that are
not voted generally will be counted as votes against the merger and the matters
associated with it.
Q: Whom should I call with questions?
A: PRN stockholders who have questions about the merger or how to vote their
shares should call D.F. King & Co., Inc. - at 1-800-659-5550 (toll free in the
United States).
AOR stockholders who have questions about the merger or how to vote their
shares should call Georgeson & Company - at 1-800-223-2064 (toll free in the
United States).
1
<PAGE>
Information About the Companies
American Oncology Resources, Inc. and Diagnostic Acquisition, Inc.
16825 Northchase Drive, Suite 1300
Houston, Texas 77060
(281) 873-2674
AOR is a national cancer management company. As of April 30, 1999, AOR
provided comprehensive management services under long-term agreements to
oncology practices comprised of 384 physicians in 18 states. The physicians
affiliated with AOR provide all aspects of care related to the diagnosis and
outpatient treatment of cancer, including medical oncology, radiation oncology,
gynecological oncology, stem cell transplantation and diagnostic radiology. AOR
was incorporated in October 1992 under the laws of the State of Delaware.
Diagnostic Acquisition, Inc. is a Texas corporation and a wholly owned
subsidiary of AOR. It was formed specifically for the purpose of merging with
and into PRN as contemplated by the merger agreement and has not conducted any
other business of any kind. Upon completion of the merger, it will cease to
exist.
Physician Reliance Network, Inc.
5420 LBJ Freeway, Suite 900
Dallas, Texas 75240
(972) 392-8700
PRN is a leading provider of management services, facilities and equipment
to (a) physicians specializing in the diagnosis and treatment of cancer and (b)
radiologists. As of April 30, 1999, PRN provided comprehensive management
services under long-term agreements to medical practices comprised of 370
physicians in 13 states. PRN's affiliated physicians provide all aspects of
care related to the diagnosis and outpatient treatment of cancer, including
medical oncology, radiation oncology, gynecological oncology and diagnostic
radiology. PRN was incorporated in June 1993 under the laws of the State of
Texas.
Recent Results
AOR's revenues for the three months ended March 31, 1999 increased 39% to
$139,840,000 from $100,949,000 reported in the same period in 1998. AOR's net
income for the three months ended March 31, 1999 increased 24% to $8,517,000,
compared with $6,871,000 reported for the first quarter of 1998. AOR's earnings
per share for the three months ended March 31, 1999 increased 21% to $0.17 per
share on 50,548,000 diluted shares outstanding as compared to $0.14 per share
on 49,940,000 diluted shares outstanding for the three months ended March 31,
1998.
PRN's revenues for the three months ended March 31, 1999 increased 26.3% to
$114.3 million compared with $90.5 million for the same period in 1998. PRN's
net income for the three months ended March 31, 1999 increased 19.1% to $8.0
million, or $0.15 per share on a diluted basis, compared with $6.7 million, or
$0.13 per share on a diluted basis, for the three months ended March 31, 1998.
Diluted weighted average shares outstanding were 54,127,000 and 52,848,000 for
the three months ended March 31, 1999 and 1998, respectively.
Information About the Stockholder Meetings (Pages 24 and 28)
The annual meeting of the AOR stockholders will be held on Tuesday, June 15,
1999 at 8:00 a.m., local time. The record date for AOR stockholders entitled to
receive notice of and to vote at the AOR annual meeting was the close of
business on May 10, 1999. On that date there were 35,627,773 shares of AOR
common stock outstanding and entitled to vote at the meeting.
The special meeting of the PRN stockholders will be held on Tuesday, June
15, 1999 at 8:00 a.m., local time. The record date for PRN stockholders
entitled to receive notice of and to vote at the PRN special meeting
2
<PAGE>
was the close of business on May 10, 1999. On that date there were 51,895,721
shares of PRN common stock outstanding and entitled to vote at the meeting.
Reasons for the Merger (Page 33)
For PRN and AOR, the merger is an attractive strategic combination that
creates significant opportunities for synergies and cost savings. At the same
time, the merger should enable AOR and PRN stockholders to participate in a
larger and more diversified company.
AOR and PRN believe that the merger of the nation's two leading cancer
practice management companies will create significant value for their
respective stockholders. We have identified a number of potential benefits of
the merger that we believe will contribute to the success of the combined
company and benefit the stockholders of both companies.
. AOR and PRN have a unique opportunity to take advantage of the
complementary strategic fit of their businesses, combining AOR's and
PRN's operations to create the clear leader in cancer management.
. We expect that our complementary skills and affiliated practices will
allow our affiliated physicians to more effectively serve patients'
needs and allow us to more efficiently provide management services to
physician groups.
. We believe that the merger represents a unique strategic fit between two
companies with similar business strategies and corporate cultures and
with complementary operations and geographical presence.
. We believe that AOR and PRN, as a combined company, will have greater
financial strength, operational efficiencies, earning power and growth
potential than either AOR or PRN would have on its own.
Recommendations to Stockholders (Pages 36 and 38)
To PRN Stockholders:
The PRN board of directors believes that the merger is fair to you and in
your best interests and unanimously recommends that you vote FOR the proposal
to approve and adopt the merger agreement. Stockholders owning approximately
28.8% of the PRN common stock as of the record date have already agreed to vote
in favor of the merger agreement.
To AOR Stockholders:
The AOR board of directors believes that the merger is fair to you and in
your best interests and unanimously recommends that you vote FOR:
. the proposal to approve the issuance of up to 50,000,000 AOR common stock
to be delivered in connection with the merger;
and, conditioned on completion of the merger,
. the proposal to adopt the amended and restated certificate of
incorporation of AOR;
. the proposal to increase the number of shares of AOR common stock
available for issuance under AOR's 1993 Affiliate Stock Option Plan; and
. the proposal to increase the number of shares of AOR common stock
available for issuance under AOR's 1993 Non-Employee Director Stock
Option Plan and to further amend the 1993 Non-Employee Director Stock
Option Plan.
Approval of ALL of the foregoing proposals is a condition to completing the
merger. Stockholders of AOR owning approximately 9.3% of the AOR common stock
as of the record date have already agreed to vote in favor of the proposals
listed above.
3
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In addition, whether or not the merger is approved, AOR's board of directors
recommends that you vote FOR:
. the proposal to elect the following seven persons as directors of AOR:
Russell L. Carson Robert A. Ortenzio
James E. Dalton Edward E. Rogoff, M.D.
Stanley A. Marks, M.D. R. Dale Ross
Richard B. Mayor
. the proposal to increase the number of shares of AOR common stock
available for issuance under AOR's 1993 Key Employee Stock Option Plan;
and
. the proposal to ratify the appointment of PricewaterhouseCoopers LLP as
AOR's independent accountants for the ensuing year.
Information About the Merger (Page 30)
The merger agreement is attached to this joint proxy statement and
prospectus as Appendix A. You should read this document, as it is the legal
document that governs the merger.
New Company Name; Related Matters After the Merger
Upon completion of the merger, the name of AOR will be changed to "US
Oncology, Inc.," and PRN will operate as a wholly owned subsidiary of US
Oncology, Inc. The amended and restated certificate of incorporation of AOR
being considered at the AOR annual meeting will become the certificate of
incorporation of US Oncology, Inc. The amended and restated bylaws of AOR will
become the bylaws of US Oncology, Inc.
The combined company's common stock will trade on The Nasdaq Stock Market
under the symbol "USON". After the merger becomes effective, all shares of PRN
common stock will cease to be listed on The Nasdaq Stock Market, and PRN will
no longer be a publicly traded company.
Stockholder Vote Required to Approve the Merger and Other Matters (Pages 25 and
28)
Sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of PRN
common stock must approve and adopt the merger agreement. Directors and
executive officers of PRN and their affiliates own 6.0% of the outstanding
shares of PRN common stock entitled to vote on the merger agreement. These
persons, who together with other significant stockholders own an aggregate of
approximately 28.8% of the outstanding PRN common stock entitled to vote on the
merger agreement as of the record date, have agreed to vote their shares in
favor of the merger agreement.
A majority of the shares represented in person or by proxy and voted at
AOR's annual meeting must approve the issuance of the shares of AOR common
stock to be delivered in connection with the merger.
A majority of shares of AOR common stock outstanding and entitled to vote at
AOR's annual meeting must approve AOR's amended and restated certificate of
incorporation and amendments to, AOR's 1993 Affiliate Stock Option Plan and
AOR's 1993 Non-Employee Director Stock Option Plan.
Approval of the foregoing matters is a condition to completing the merger.
Directors and executive officers of AOR and their affiliates own approximately
9.3% of the outstanding shares of AOR common stock entitled to vote on the
foregoing matters as of the record date, and these persons have agreed to vote
their shares in favor of the foregoing matters.
The seven individuals receiving the highest number of votes in the election
of directors at the AOR annual meeting will be elected to AOR's board of
directors.
A majority of the shares of AOR common stock outstanding and entitled to
vote at the AOR annual meeting must approve the amendment to AOR's 1993 Key
Employee Stock Option Plan.
4
<PAGE>
Ratification of the appointment of PricewaterhouseCoopers LLP requires the
favorable vote of a majority of shares represented in person or by proxy and
entitled to vote at AOR's annual meeting.
Treatment of PRN Stock Options in the Merger (Page 56)
All outstanding options to purchase shares of PRN common stock will vest and
become fully exercisable at the time of the merger. All PRN options will become
options to purchase a number of shares of AOR common stock which equals the
number of shares of PRN common stock subject to the option, multiplied by the
exchange ratio of 0.94. The per share exercise price of all PRN options will
equal the exercise price of such PRN options divided by the exchange ratio.
Management and Board of Directors of the Combined Company Following the Merger
(Page 54)
If the merger is completed, the management of AOR will continue except that
O. Edwin French, the current Chief Operating Officer of PRN, will serve as
Chief Operating Officer of the combined company and Joseph S. Bailes, M.D., the
current Executive Vice President and National Medical Director of PRN, will
serve as Executive Vice President of the combined company.
The merger agreement provides that following the merger, the board of
directors of the combined company will be comprised of 14 persons, seven of
whom currently serve on AOR's board of directors and seven of whom currently
serve on PRN's board of directors. The 14 directors are expected to be: Nancy
G. Brinker, Russell S. Carson, John T. Casey, J. Taylor Crandall, James E.
Dalton, Robert W. Daly, Stephen E. Jones, M.D., Stanley A. Marks, M.D., Richard
B. Mayor, Robert A. Ortenzio, Boone Powell, Jr., Edward E. Rogoff, M.D., R.
Dale Ross, and Burton S. Schwartz, M.D. Each of these persons has agreed to
serve on the combined company's board of directors.
Opinion of Financial Advisor to AOR (Page 38)
AOR's financial advisor, BT Alex. Brown Incorporated, delivered its oral
opinion to the AOR board of directors, which opinion was subsequently confirmed
by delivery of written opinions dated December 11, 1998 and May 10, 1999, as to
the fairness to AOR stockholders, from a financial point of view, of the
consideration to be delivered to PRN's stockholders in the merger. The full
text of the written opinion of BT Alex. Brown dated as of May 10, 1999 is
attached to this joint proxy statement and prospectus as Appendix C and should
be read carefully in its entirety. The opinion of BT Alex. Brown is directed to
the AOR board of directors and does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the issuance of AOR
common stock to be delivered in connection with the merger or the other matters
being presented to a vote of AOR stockholders.
Opinion of Financial Advisor to PRN (Page 43)
On December 11, 1998, Goldman, Sachs & Co., financial advisor to PRN,
delivered its oral opinion to the PRN board of directors, which was
subsequently confirmed by a written opinion dated the same date. Goldman Sachs
has confirmed its December 11, 1998 opinion by delivery of its written opinion
to the PRN board of directors, dated the date hereof. The Goldman Sachs written
opinion dated the date hereof stated that, as of such date, and based upon and
subject to the various qualifications and assumptions described in the written
opinion, the exchange ratio pursuant to the merger agreement was fair from a
financial point of view to the holders of PRN common stock. The full text of
the written opinion, dated the date of this joint proxy statement and
prospectus, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with such opinion, is set
forth in Appendix D to this joint proxy statement and prospectus. The Goldman
Sachs opinions dated December 11, 1998 and the date hereof were provided for
the information and assistance of the PRN board of directors in connection with
its consideration of the merger, and such opinions do not constitute a
recommendation as to how any holder of PRN common stock should vote at the PRN
special meeting.
5
<PAGE>
Interests of Persons in the Merger Other Than as Stockholders (Page 50)
In considering the recommendation of PRN's board of directors in favor of
the merger, PRN stockholders should be aware that members of the board of
directors of PRN and other members of its management will receive benefits as a
result of the merger that will be in addition to or different from benefits
received by PRN stockholders generally.
Conditions of the Merger (Page 57)
A number of conditions must be satisfied before the merger may be completed,
including:
. approval and adoption of the merger agreement by the PRN stockholders;
. approval by the AOR stockholders of the issuance of shares of AOR common
stock to be delivered in connection with the merger, AOR's amended and
restated certificate of incorporation, and the amendments to AOR's 1993
Non-Employee Director Stock Option Plan and 1993 Affiliate Stock Option
Plan;
. the absence of legal restraints to the merger;
. receipt by PRN of a legal opinion with respect to the tax-free nature of
the merger; and
. receipt of opinions of PricewaterhouseCoopers LLP and Arthur Andersen LLP
confirming that the merger qualifies for pooling of interests accounting
treatment.
Termination of the Merger (Page 61)
Either PRN or AOR may call off the merger if:
. the other party consents in writing;
. the merger is not completed by July 1, 1999, which is automatically
extended to August 1, 1999 if the only remaining condition to the merger
is the approval of a governmental entity;
. there exists a legal restraint preventing the merger;
. the PRN stockholders do not approve the merger or the AOR stockholders do
not approve the issuance of the AOR common stock to be delivered in
connection with the merger and the other matters being considered at
AOR's annual meeting that are conditions to the merger;
. the other party breaches in a material way its representations,
warranties, covenants or agreements under the merger agreement and that
breach is not or cannot be remedied; or
. the board of directors of the other party or such party withdraws or
adversely modifies its approval or recommendation of the merger or
recommends a business combination transaction with a third party.
Termination Fee and Expenses (Page 62)
The merger agreement generally requires AOR or PRN to pay to the other a
termination fee of (a) $20 million if the merger agreement is terminated so
that it may pursue another combination transaction or if the merger agreement
is terminated by one company because the other company's board of directors
withdraws its recommendation in favor of the merger or the other company's
stockholder rights plan is waived, amended, redeemed or allowed to lapse or
declared void or illegal; (b) $15 million if the merger agreement is terminated
by one company because of the other company's failure to obtain required
stockholder approvals or breach of a covenant in the merger agreement; and (c)
$12 million if the merger agreement is terminated by one company because of the
other company's breach of a representation or warranty in the merger agreement,
which breach would have a material adverse effect.
6
<PAGE>
Stock Option Agreements (Page 63)
PRN has granted an option to AOR to purchase shares of PRN common stock
equal to approximately 10.1% of the outstanding shares of PRN common stock. AOR
has granted an option to PRN to purchase shares of AOR common stock equal to
approximately 10.1% of the outstanding shares of AOR common stock. Each option
is exercisable under the same circumstances that the termination fee is payable
to AOR or PRN as a result of pursuing another transaction, provided that the
profit that AOR or PRN realizes on the exercise of the option plus any
termination fee received by it may not exceed $25 million. The full text of
each of these option agreements is attached to this joint proxy statement and
prospectus as Appendix B.
Non-Solicitation Provisions (Page 60)
AOR and PRN have each agreed not to solicit, initiate discussions with or
engage in negotiations with any other companies relating to a possible
acquisition of AOR or PRN. However, if either board of directors receives an
unsolicited proposal relating to an alternative acquisition transaction that
such board reasonably determines in good faith would, if completed, result in a
transaction more favorable from a financial point of view to their stockholders
than the merger, and such board further determines that they are required to
pursue the transaction to discharge their fiduciary duties, then AOR's board or
PRN's board, as the case may be, may provide information to or enter into
discussions or negotiations with the party making the proposal. However, if the
merger agreement is terminated so that AOR or PRN may pursue another
acquisition proposal, then the party pursuing the alternative transaction must
promptly pay the other a termination fee of $20 million. In addition, the other
party's right to exercise its option to purchase shares of the common stock of
the party pursuing the alternative transaction will be triggered.
The termination fee, the option agreements and the no-solicitation
provisions of the merger agreement may have the effect of discouraging persons
who might be interested in entering into a business combination with PRN or AOR
from proposing such a transaction, even where the consideration payable to PRN
or AOR stockholders, as applicable, in such a transaction would exceed the
consideration payable in the merger.
Government and Regulatory Approvals Required for the Merger (Page 54)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits PRN and
AOR from completing the merger until they have furnished certain information
and materials to the Antitrust Division of the U.S. Department of Justice and
the Federal Trade Commission and until a required waiting period has expired or
been terminated. The Antitrust Division and the FTC have the authority to
challenge the merger on antitrust grounds before or after the merger is
completed. The merger may also be reviewed on antitrust grounds by other
authorities in jurisdictions where either PRN or AOR has operations. AOR and
PRN each filed materials with the Justice Department and the FTC, and early
termination of the waiting period was granted on March 8, 1999.
Accounting Treatment Applicable to the Merger (Page 53)
AOR and PRN expect the merger to qualify as a pooling of interests for
accounting purposes, which means that the companies will be treated as if they
had always been combined for accounting and financial reporting purposes. As a
condition to the merger, AOR and PRN must each receive an opinion from its
independent accounting firm regarding qualification of the merger as a pooling
of interests for accounting purposes.
U. S. Federal Income Tax Consequences of the Merger to PRN Stockholders (Page
52)
The receipt of shares of AOR common stock in the merger will generally be
tax-free to the stockholders of PRN. PRN stockholders may be required to pay
taxes on cash received for fractional shares. Tax matters are very complicated,
and the tax consequences of the merger to you will depend on the facts of your
own situation. We urge you to consult your tax advisor for a full understanding
of the tax consequences of the merger to you.
7
<PAGE>
Stockholders Will Not Have Dissenters' Rights
Neither AOR stockholders nor PRN stockholders will have any appraisal rights
or other rights to demand fair value in cash as a result of the merger.
Comparative Market Price Data and Dividend Information (Page 10)
AOR common stock and PRN common stock are each listed on The Nasdaq Stock
Market. The Nasdaq Stock Market closing price for a share of AOR common stock
was $13.00 on December 11, 1998, the last trading day prior to the public
announcement of the proposed merger, and was $8.44 on May 7, 1999, the most
recent date for which prices were available prior to the printing of this joint
proxy statement and prospectus. The closing price per share on The Nasdaq Stock
Market of PRN common stock was $11.50 on December 11, 1998 and $8.06 on May 7,
1999. Stockholders are encouraged to obtain current market quotations.
AOR has applied to list the shares of AOR common stock to be delivered in
connection with the merger on The Nasdaq Stock Market.
Risks of the Merger (Page 17)
In considering whether to approve the merger agreement and related matters,
you should consider risks of the merger, including, among others, the risk of
fluctuations in the market price of AOR or PRN common stock, risks associated
with integrating the companies' businesses and the fact that certain directors
and officers of PRN may have interests in the merger that are different from or
in addition to yours. We urge you to read carefully the factors described in
"Risk Factors" in making your decision.
Comparative Rights of Stockholders of AOR and PRN (Page 72)
The rights of stockholders of AOR and stockholders of PRN are currently
governed by Delaware law and Texas law, respectively, and the respective
charters and bylaws of the two companies. If the merger is completed, the
rights of PRN stockholders who become AOR stockholders will be determined by
AOR's amended and restated certificate of incorporation and amended and
restated bylaws, which differ in certain respects from PRN's articles of
incorporation and bylaws.
Other Proposals to be Presented at AOR's Annual Meeting
At AOR's annual meeting, stockholders of AOR will also be asked to consider
and act upon the following other proposals:
Proposal No. 2. To approve AOR's amended and restated certificate of
incorporation, which includes amendments to AOR's existing certificate of
incorporation to (a) change AOR's name to US Oncology, Inc., (b) increase the
number of authorized shares of the common stock of AOR from 80,000,000 to
250,000,000, and the number of authorized shares of preferred stock from
1,000,000 to 2,000,000, (c) provide that the directors of AOR will be divided
into three classes, each with a three-year term (except, initially, the Class I
and II directors, who would serve for one- and two-year terms, respectively),
and that directors may be removed only for cause upon the vote of holders of at
least two-thirds of the outstanding shares of AOR common stock, and provide for
a mechanism for stockholder nominations of individuals to serve as directors,
(d) provide that stockholders may only act at a properly convened annual
meeting or special meeting of stockholders and specify who may call a special
meeting and (e) provide that the provisions relating to the foregoing (c), (d)
and this clause (e) may only be amended by the vote of two-thirds of the
outstanding shares of capital stock of AOR entitled to vote in the election of
directors, to be effective only if the merger is consummated. The board of
directors of AOR recommends that the stockholders of AOR vote for the adoption
of AOR's amended and restated certificate of incorporation.
8
<PAGE>
Proposal No. 3. To approve an amendment to AOR's 1993 Affiliate Stock Option
Plan to increase the number of shares of AOR common stock available for
issuance under that plan. The board of directors of AOR recommends that the
stockholders of AOR vote for the amendment to AOR's 1993 Affiliate Stock Option
Plan.
Proposal No. 4. To approve amendments to AOR's 1993 Non-Employee Director
Stock Option Plan to increase the number of shares of AOR common stock
available for issuance under that plan and to make other amendments more fully
set forth in this joint proxy statement and prospectus. The board of directors
of AOR recommends that the stockholders of AOR vote for the amendments to AOR's
1993 Non-Employee Director Stock Option Plan.
Proposal No. 5. To elect seven members of the Board of Directors of AOR to
serve as directors for the terms described in this joint proxy statement and
prospectus. The board of directors of AOR recommends that the stockholders of
AOR vote for the nominees for directors described herein.
Proposal No. 6. To approve an amendment to AOR's 1993 Key Employee Stock
Option Plan to increase the number of shares available for issuance under that
plan. The board of directors of AOR recommends that the stockholders of AOR
vote for the amendment to AOR's 1993 Key Employee Stock Option Plan.
Proposal No. 7. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the ensuing year. The board of directors of AOR
recommends that the stockholders of AOR vote for the ratification of the
appointment of PricewaterhouseCoopers LLP.
Under the terms of the merger agreement, proposals Nos. 2, 3 and 4 must be
approved for the merger to be completed.
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995: (a)
certain statements, including possible or assumed future results of operations
of AOR, PRN or the combined company, contained in "Summary," "Risk Factors,"
"The Merger--Background of the Merger; --AOR's Reasons for the Merger; --
Recommendation of the Board of Directors of AOR; --Opinion of AOR's Financial
Advisor; --PRN's Reasons for the Merger; --Recommendation of the Board of
Directors of PRN; --Opinion of PRN's Financial Advisor" and "Unaudited Pro
Forma Combined Financial Statements," and including any statements regarding
the prospects for any of our services, the impact of competition, the proposed
integration of the business and management structure for AOR and PRN and the
effects of the merger; (b) any statements preceded by, followed by or that
include the words "believes," "expects," "anticipates," "intends" or similar
expressions; and (c) other statements regarding matters that are not historical
facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors." AOR stockholders and PRN stockholders are cautioned not to place
undue reliance on such statements, which speak only as of the date they are
made.
The cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by AOR and PRN or persons acting on their behalf.
Neither AOR nor PRN undertakes any obligation to release any revisions to or to
update publicly any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
unanticipated events.
9
<PAGE>
COMPARATIVE MARKET PRICE DATA AND DIVIDEND INFORMATION
AOR common stock is traded on The Nasdaq Stock Market under the symbol
"AORI." PRN common stock is traded on The Nasdaq Stock Market under the symbol
"PHYN." The following table sets forth the range of high and low per share
closing prices for the AOR common stock and the PRN common stock, as reported
on The Nasdaq Stock Market, for the period from January 1, 1997 through May 7,
1999.
<TABLE>
<CAPTION>
AOR PRN
------------- -------------
Common Stock Common Stock
------------- -------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1997
First Quarter.................................... $11.00 $ 8.75 $ 9.00 $ 5.06
Second Quarter................................... 16.88 7.44 10.69 5.00
Third Quarter.................................... 17.38 13.31 10.00 8.06
Fourth Quarter................................... 19.00 12.75 12.88 9.25
1998
First Quarter.................................... $17.38 $12.38 $14.75 $ 9.25
Second Quarter................................... 15.75 11.13 14.40 10.75
Third Quarter.................................... 13.75 8.13 12.62 7.56
Fourth Quarter................................... 15.00 8.63 13.63 8.56
1999
First Quarter.................................... $15.06 $ 7.56 $13.50 $ 6.69
Second Quarter (through May 7, 1999)............. 9.13 7.00 8.38 6.00
</TABLE>
The market prices of shares of AOR common stock and PRN common stock
fluctuate, sometimes significantly. The market price of AOR common stock on the
date the merger is completed, the date shares of AOR common stock are received
by holders of PRN common stock or the date on which such shares of AOR common
stock are eventually sold may be more or less than the price of AOR common
stock as of the date of this joint proxy statement and prospectus. As a result,
stockholders are encouraged to obtain current market quotations.
Neither AOR nor PRN has ever paid cash dividends on its common stock.
Neither of the companies currently plans to pay cash dividends on its common
stock, and each is currently prohibited from doing so by its bank credit
facility.
On the AOR record date, there were 228 holders of record and approximately
8,800 beneficial owners of AOR common stock. On the PRN record date, there were
504 holders of record and approximately 6,000 beneficial owners of PRN common
stock.
The following table presents trading information for AOR and PRN common
stock on The Nasdaq Stock Market on December 11, 1998 and May 7, 1999. December
11, 1998 was the last full trading day prior to our announcement of the signing
of the merger agreement. May 7, 1999 was the last practicable trading day for
which information was available prior to the date of this joint proxy statement
and prospectus.
<TABLE>
<CAPTION>
AOR PRN AOR
-------------------- -------------------- --------------------
Common Stock Price
Common Stock Common Stock x.94
-------------------- -------------------- --------------------
High Low Close High Low Close High Low Close
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 11, 1998....... $13.25 $12.75 $13.00 $11.50 $10.88 $11.50 $12.46 $11.99 $12.22
May 7, 1999............. $ 8.75 $ 8.38 $ 8.44 $ 8.25 $ 7.81 $ 8.06 $ 8.23 $ 7.88 $ 7.93
</TABLE>
Following the merger, AOR common stock will continue to be traded on The
Nasdaq Stock Market under the new symbol "USON," and the listing of PRN common
stock on The Nasdaq Stock Market will be terminated.
10
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following selected historical consolidated financial data of AOR for
each of the five years in the period ended December 31, 1998 have been derived
from AOR's historical audited consolidated financial statements. The historical
financial data is not necessarily indicative of results to be expected after
the merger is completed. The financial data should be read in conjunction with
the separate consolidated financial statements and the notes thereto
incorporated by reference herein. See "Where You Can Find More Information."
AOR SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue....................... $20,410 $ 99,174 $205,460 $321,840 $455,952
Operating expenses
Pharmaceuticals and sup-
plies....................... 7,575 35,763 85,210 144,890 207,930
Practice compensation and
benefits.................... 4,001 19,766 41,350 61,296 86,136
Other practice costs......... 2,258 12,032 23,495 35,090 51,769
General and administrative... 4,367 9,406 14,095 21,174 26,201
Depreciation and amortiza-
tion........................ 746 4,655 9,343 14,177 23,287
------- -------- -------- -------- --------
18,947 81,622 173,493 276,627 395,323
------- -------- -------- -------- --------
Income from operations....... 1,463 17,552 31,967 45,213 60,629
Other income (expense)
Interest income.............. 143 2,007 1,062 348 222
Interest expense............. (237) (3,690) (4,307) (8,715) (12,096)
Other........................ -- 1,600 -- -- --
------- -------- -------- -------- --------
Income before income taxes.... 1,369 17,469 28,722 36,846 48,755
Income taxes.................. 126 5,852 11,072 13,979 18,527
------- -------- -------- -------- --------
Net income.................... $ 1,243 $ 11,617 $ 17,650 $ 22,867 $ 30,228
======= ======== ======== ======== ========
Net income per share--basic... $ 0.08 $ 0.33 $ 0.40 $ 0.50 $ 0.63
------- -------- -------- -------- --------
Shares used in per share cal-
culations--basic............. 15,926 35,559 44,228 45,571 48,293
------- -------- -------- -------- --------
Net income per share--dilut-
ed........................... $ 0.07 $ 0.30 $ 0.37 $ 0.48 $ 0.61
------- -------- -------- -------- --------
Shares used in per share cal-
culations--diluted........... 16,995 39,318 47,549 48,100 49,845
------- -------- -------- -------- --------
<CAPTION>
December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............... $ 6,653 $ 59,724 $ 42,972 $ 43,864 $ 82,016
Total assets.................. 55,709 272,359 339,400 483,893 568,100
Long term debt................ 18,703 44,190 81,707 139,716 173,140
Stockholders' equity.......... 30,977 191,180 221,854 263,994 294,387
</TABLE>
11
<PAGE>
The following selected historical consolidated financial data of PRN for the
fiscal year ended September 30, 1994, for the three month period ended
December 31, 1994, and each of the four years in the period ended December 31,
1998 have been derived from PRN's audited consolidated financial statements.
The three months ended December 31, 1994 is reflected as a stand alone period
because PRN changed its fiscal year end from September 30 to December 31. The
historical financial data is not necessarily indicative of results to be
expected after the merger is completed. The financial data should be read in
conjunction with the separate consolidated financial statements and the notes
thereto incorporated by reference herein. See "Where You Can Find More
Information."
PRN SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three
Year Ended Months Ended
September 30, December 31, Year Ended December 31,
------------- ------------ --------------------------------------
1994 1994 1995 1996 1997 1998
------------- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $59,240 $23,184 $137,273 $238,319 $317,435 $397,989
Operating expenses
Pharmaceuticals and
supplies.............. 15,996 5,674 33,605 70,822 105,758 149,989
Salaries and benefits.. 18,866 6,750 37,778 66,879 86,862 92,619
General and
administrative........ 10,554 4,763 25,777 37,988 57,606 61,416
Provision for
uncollectible
accounts.............. 4,164 1,796 8,483 11,030 51,703 17,345
Depreciation and
amortization.......... 2,487 1,253 7,653 15,894 21,017 25,176
------- ------- -------- -------- -------- --------
52,067 20,236 113,296 202,613 322,946 346,545
------- ------- -------- -------- -------- --------
Income (loss) before
interest, taxes and
extraordinary item.... 7,173 2,948 23,977 35,706 (5,511) 51,444
Other income (expense)
Interest expense....... (1,682) (604) (672) (1,939) (4,107) (4,034)
------- ------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... 5,491 2,344 23,305 33,767 (9,618) 47,410
Income tax provision
(benefit).............. 3,128 929 9,190 13,271 (2,386) 17,657
------- ------- -------- -------- -------- --------
Income (loss) before
extraordinary item..... 2,363 1,415 14,115 20,496 (7,232) 29,753
Extraordinary item,
early retirement of
debt, net of deferred
tax benefit............ (302) -- -- -- -- --
------- ------- -------- -------- -------- --------
Net income (loss)....... $ 2,061 $ 1,415 $ 14,115 $ 20,496 $ (7,232) $ 29,753
======= ======= ======== ======== ======== ========
Net income (loss) per
share before
extraordinary item--
basic.................. $ 0.12
-------
Net income (loss) per
share--basic........... $ 0.10 $ 0.05 $ 0.35 $ 0.44 $ (0.14) $ 0.57
------- ------- -------- -------- -------- --------
Shares used in per share
calculations--basic.... 20,432 31,072 40,462 46,643 50,635 52,504
------- ------- -------- -------- -------- --------
Net income (loss) per
share before
extraordinary item--
basic.................. $ 0.08
-------
Net income (loss) per
share--diluted......... $ 0.07 $ 0.04 $ 0.34 $ 0.43 $ (0.14) $ 0.56
------- ------- -------- -------- -------- --------
Shares used in per share
calculations--diluted.. 29,264 32,058 41,012 47,433 50,635 53,351
------- ------- -------- -------- -------- --------
<CAPTION>
September 30, December 31, December 31,
------------- ------------ --------------------------------------
1994 1994 1995 1996 1997 1998
------------- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $19,484 $28,378 $ 52,626 $ 78,769 $ 78,721 $ 97,230
Total assets............ 85,923 98,886 204,633 355,341 400,634 468,499
Long term debt.......... 38,838 -- 26,973 14,121 49,661 61,334
Redeemable convertible
preferred stock........ 24,400 -- -- -- -- --
Shareholders' equity.... 5,995 80,622 145,734 294,776 290,304 335,411
</TABLE>
12
<PAGE>
Summary Unaudited Pro Forma Combined Financial Information
The following summary unaudited pro forma combined financial information of
AOR and PRN gives effect to the merger under the pooling of interests method of
accounting as if the merger had been consummated as of the beginning of the
periods presented. The pro forma information for the years ended December 31,
1996, 1997 and 1998 was prepared based on the respective historical financial
information of AOR and PRN.
The unaudited pro forma information set forth below is not necessarily
indicative of results that would actually have been achieved if the merger had
been consummated as of the dates reflected or that may be achieved in the
future. This information should be read in conjunction with the unaudited pro
forma combined financial statements included herein, as well as the historical
financial statements (and related notes) of AOR and PRN that are incorporated
by reference in this joint proxy statement and prospectus. See "Where You Can
Find More Information."
SUMMARY PRO FORMA STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue.......................................... $432,749 $625,413 $836,596
Operating expenses
Pharmaceuticals and supplies................... 155,743 250,425 357,766
Practice compensation and benefits............. 104,174 143,210 172,298
Other practice costs........................... 57,414 87,232 107,671
General and administrative..................... 22,508 31,809 38,325
Provision for uncollectible accounts........... -- 37,841 --
Depreciation and amortization.................. 25,570 35,527 48,797
-------- -------- --------
365,409 586,044 724,857
-------- -------- --------
Income from operations......................... 67,340 39,369 111,739
Other income (expense)
Interest income................................ 1,062 348 222
Interest expense............................... (6,706) (13,282) (16,590)
-------- -------- --------
Income before income taxes....................... 61,696 26,435 95,371
Income taxes..................................... 24,042 11,292 35,882
-------- -------- --------
Net income....................................... $ 37,654 $ 15,143 $ 59,489
======== ======== ========
Net income per share--basic...................... $ 0.43 $ 0.16 $ 0.61
-------- -------- --------
Shares used in per share calculations--basic..... 88,072 93,168 97,647
-------- -------- --------
Net income per share--diluted.................... $ 0.41 $ 0.16 $ 0.59
-------- -------- --------
Shares used in per share calculations--diluted... 92,136 97,198 99,995
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Balance Sheet Data:
Working capital.................................................... $ 165,982
Total assets....................................................... 1,038,199
Long term debt..................................................... 236,774
Stockholders' equity............................................... 615,834
</TABLE>
13
<PAGE>
SELECTED UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for the periods presented (a) the historical
basic and diluted earnings per share of the AOR and PRN common stock, (b) the
combined pro forma and equivalent pro forma basic and diluted earnings per
share of AOR and PRN, respectively, (c) the historical book value per share of
the AOR and PRN common stock and (d) the combined pro forma and equivalent pro
forma book value per share of AOR and PRN, respectively. The PRN equivalent pro
forma amounts shown below were calculated by multiplying the combined pro forma
amounts by the 0.94 exchange ratio. The pro forma data does not purport to be
indicative of the results of future operations or the results that would have
occurred had the merger been consummated at the beginning of the periods
presented. The information set forth should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements and the financial statements
and notes thereto of AOR and PRN incorporated by reference into this joint
proxy statement and prospectus. See "Where You Can Find More Information."
Neither AOR nor PRN has ever declared or paid cash dividends on its common
stock.
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------
1996 1997 1998
----- ------ -----
<S> <C> <C> <C>
Net income (loss) per share--basic
AOR-historical........................................... $0.40 $ 0.50 $0.63
Combined-pro forma....................................... $0.43 $ 0.16 $0.61
PRN-historical........................................... $0.44 $(0.14) $0.57
PRN-equivalent pro forma................................. $0.40 $ 0.15 $0.57
Net income (loss) per share--diluted
AOR-historical........................................... $0.37 $ 0.48 $0.61
Combined-pro forma....................................... $0.41 $ 0.16 $0.59
PRN-historical........................................... $0.43 $(0.14) $0.56
PRN-equivalent pro forma................................. $0.39 $ 0.15 $0.55
Book value per share
AOR-historical........................................................ $6.10
Combined-pro forma.................................................... $6.31
PRN-historical........................................................ $6.39
PRN-equivalent pro forma.............................................. $5.93
</TABLE>
14
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
AOR and PRN file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information filed by either company at
the Securities and Exchange Commission's public reference rooms at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following
regional offices of the Securities and Exchange Commission: Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. The companies' filings are also available to the public from
commercial document retrieval services and at the Internet web site maintained
by the Securities and Exchange Commission at http://www.sec.gov.
AOR filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission the AOR common stock to be issued to PRN
stockholders in the merger. This joint proxy statement and prospectus is a part
of that registration statement and constitutes a prospectus of AOR in addition
to being a proxy statement for AOR and PRN for their respective meetings. As
allowed by the Securities and Exchange Commission's rules, this joint proxy
statement and prospectus does not contain all of the information you can find
in the registration statement or the exhibits to the registration statement.
This joint proxy statement and prospectus summarizes some of the documents that
are exhibits to the registration statement, and you should refer to the
exhibits for a more complete description of the matters covered by those
documents.
The Securities and Exchange Commission allows AOR and PRN to "incorporate by
reference" information into this joint proxy statement and prospectus. This
means that we may disclose important information to you by referring you to
another document filed separately with the Securities and Exchange Commission.
The information incorporated by reference is considered to be part of this
joint proxy statement and prospectus, except for any information modified or
superseded by information in (or incorporated by reference in) this joint proxy
statement and prospectus. This joint proxy statement and prospectus
incorporates by reference the documents set forth below that have been
previously filed with the Securities and Exchange Commission. The documents
contain important information about our companies and their finances.
AOR Securities and Exchange Commission Filings (File No. 0-26190)
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
as amended by AOR's Forms 10-K/A filed April 30, 1999 and May 7, 1999; and
2. The description of AOR's capital stock contained in its Registration
Statement on Form 8-A dated June 6, 1995 and description of AOR's Rights to
Purchase Series A Preferred Stock in its Registration Statement on Form 8-A
dated June 2, 1997.
PRN Securities and Exchange Commission Filings (File No. 0-24872)
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
as amended by PRN's Form 10-K/A filed May 6, 1999; and
2. The description of PRN's common stock contained in its Registration
Statement on Form 8-A dated September 27, 1994 and the description of PRN's
Rights to Purchase Series One Junior Preferred Stock contained in its
Registration Statement on Form 8-A dated June 3, 1997, as amended by Form 8-A/A
filed December 23, 1998.
15
<PAGE>
AOR and PRN are also incorporating by reference additional documents that
either company may file with the Securities and Exchange Commission between the
date of this joint proxy statement and prospectus and the date of their
meetings of stockholders to be held in connection with the merger. Statements
contained in documents incorporated by reference may be modified or superseded
by later statements in this joint proxy statement and prospectus or by
statements in subsequent documents incorporated by reference, in which case you
should refer to the later statement.
AOR or PRN will provide, without charge, a copy of any or all of their
documents incorporated by reference in this joint proxy statement and
prospectus (other than exhibits to such documents, unless the exhibits are
specifically incorporated by reference in such documents). You may obtain
documents incorporated by reference in this joint proxy statement and
prospectus by requesting them in writing or by telephone from the appropriate
party at the following addresses:
<TABLE>
<CAPTION>
For AOR documents: For PRN documents:
<S> <C>
American Oncology Resources, Inc. Physician Reliance Network, Inc.
16825 Northchase Drive, Suite 1300 5420 LBJ Freeway, Suite 900
Houston, Texas 77060 Dallas, Texas 75240
Attn: L. Fred Pounds Attn: George P. McGinn, Jr.
(281) 873-2674 (972) 392-8718
</TABLE>
If you would like to request documents from either company, please do so by
June 4, 1999 to receive them before the stockholders' meetings.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement and prospectus to vote on the merger
agreement and the matters associated with it. We have not authorized anyone to
provide you with information that is different from what is contained in this
joint proxy statement and prospectus. This joint proxy statement and prospectus
is dated May 10, 1999. You should not assume that the information contained in
this joint proxy statement and prospectus is accurate as of any date other than
such date, and neither the mailing of this joint proxy statement and prospectus
to stockholders nor the issuance of AOR common stock in the merger shall create
any implication to the contrary. AOR supplied all information contained or
incorporated by reference in this joint proxy statement and prospectus relating
to AOR, and PRN has supplied all such information relating to PRN.
16
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before voting on the
proposals contained in this joint proxy statement and prospectus. The risks and
uncertainties described below are not, and will not be, the only ones facing
the combined company. If any of the following risks occur, the business,
financial condition or results of operations of the combined company could be
materially harmed. In that case, the trading price of the combined company's
common stock could decline, and you may lose all or part of your investment.
RISK FACTORS RELATING TO THE MERGER
We may not achieve expected synergies.
We expect the merger to result in synergies and operating efficiencies,
including reduced overhead costs as a percentage of revenue, expanded
operations, enhanced purchasing leverage and improved managed care contracting.
These expected benefits may not be achieved. Whether we ultimately realize
these benefits will depend on a number of factors, many of which are beyond our
control.
Integrating our operations will be difficult and may cause harmful disruptions
to our business.
Integrating our operations may distract the attention of management and
other personnel from our day-to-day business activities. In addition, employees
of AOR and PRN may be less productive as a result of uncertainty during the
integration process, which may disrupt our business. These disruptions or any
other difficulties with integration could seriously harm the combined company.
To attain the benefits of the merger, we will have to effectively integrate our
operations. In particular, we must integrate our management and other
personnel, our information systems and our financial, accounting and other
operational procedures. This process will require us to bring together
nationwide operations and different corporate and physician cultures. AOR and
PRN have each affiliated with numerous physician practices but neither has
attempted a transaction of the size of the merger.
The shares of common stock of the combined company you actually receive in the
merger may be less valuable than the shares on the day you make your decision
about the merger.
The value of the combined company shares that PRN stockholders receive will
vary based on fluctuations in the price of the common stock of AOR prior to the
merger. This is because it is unlikely that the value of the shares will be the
same on the date of the merger as the price of AOR common stock on the date of
this joint proxy statement and prospectus. In the merger, each share of PRN
will convert into 0.94 of a share of AOR common stock. This exchange ratio is
fixed. We will not adjust the exchange ratio in the event of any increase or
decrease in the price of AOR or PRN common stock.
AOR's or PRN's business, market determinations of the likelihood that the
merger will be consummated, general market and economic conditions and other
factors may cause changes in the stock prices. We strongly advise AOR and PRN
stockholders to obtain current market quotes for AOR and PRN common stock prior
to the stockholders' meetings.
Costs of integration and transaction expenses will be substantial and could
significantly exceed our expectations.
We will incur transaction, integration and restructuring costs in connection
with the merger. We expect these costs to be substantial, and unanticipated
additional expenses related to the merger could cause this amount to increase
significantly. Although it is impossible to determine the actual amount of
these charges until the integration plans are completed, we believe that the
total of these expenditures will be approximately $28 million. Of this amount
we expect approximately $16.7 million to be charged to earnings at the
effective time of the merger, including:
. fees payable to our financial advisors,
17
<PAGE>
. severance payments to PRN employees,
. costs and expenses incurred in connection with our due diligence,
. filing and printing fees and expenses for securities documents,
antitrust filings and other filings relating to the merger,
. write-off of capitalized financing costs relating to existing bank debt
and
. legal, accounting and other professional fees incurred in connection
with all of the above.
We expect that approximately $8.0 million in additional costs will be charged
to earnings as incurred in future periods. We expect these additional costs to
include:
. costs incurred in connection with leasehold abandonments,
. costs related to conversion and integration of our information systems,
. stay bonuses and
. costs relating to training and protocol changes.
We expect that approximately $3.3 million in additional costs will be
capitalized and charged to earnings over future periods. We expect these
additional costs to include:
. Bank financing costs on new credit facilities to be entered into in
connection with the merger and
. Non-competition agreements.
Some of PRN's officers', directors' and stockholders' support for the merger
may be biased by their specific interests.
In considering whether to approve the merger, PRN stockholders should be
aware that some persons and entities may be biased by their specific interests
that are not shared by PRN's stockholders generally. Some of these interests
are as follows:
. Under their employment agreements, John T. Casey, George P. McGinn and
Michael M. Murdock, currently executive officers of PRN, will be
entitled to severance payments as a result of the merger.
. O. Edwin French and Joseph S. Bailes, M.D., currently executive
officers of PRN, will become officers of the combined company.
. Texas Oncology, P.A., a major stockholder of PRN, is party to a service
agreement with a subsidiary of PRN, which will become a subsidiary of
the combined company as a result of the merger.
. The options held by PRN employees will become fully exercisable as a
result of the merger.
. Nancy G. Brinker, John T. Casey, J. Taylor Crandall, Robert W. Daly,
Stephen E. Jones, M.D., Boone Powell, Jr., and Burton S. Schwartz, M.D.
will become directors of the combined company after the merger and will
receive stock options in the combined company.
. In the merger agreement, AOR and PRN have agreed to maintain
indemnification and insurance for PRN's officers and directors for a
period of six years.
For a more detailed description of these interests, see "The Merger--Some
Officers, Directors and Significant Stockholders of PRN Have Interests in the
Merger Other Than as Stockholders" beginning on page 50.
Loss of our key personnel could adversely affect our business because those
people possess unique knowledge about our business and have established
critical relationships with physicians and other third parties.
We must retain senior executives and other key employees to be successful.
Many of those people have developed unique knowledge of our business during
their employment with us. In addition, they have established relationships with
our affiliated physicians and other third parties that are critical to our
success. We
18
<PAGE>
may not be able to retain key employees before or after the merger. The loss of
the services of any key employees or of any significant group of employees
could seriously harm our companies. During the pre-merger and integration
phases, competitors may seek to recruit key employees. Employee uncertainty
regarding the effects of the merger could also cause increased turnover. Our
employees are generally not bound by employment agreements. If any of our key
employees leave, we may not be able to find suitable replacements.
Physicians and other third parties may not accept the combined company, which
could jeopardize our ability to affiliate with new practices and physicians and
our ability to enter into relationships with other third parties such as
payors.
AOR and PRN have each tried to build name recognition and physician
acceptance of their respective companies. However, physicians and other third
parties may not accept the combined company, even if they accepted AOR or PRN
as individual companies. We believe that transferring the name recognition from
AOR and PRN to the combined company, operating under the name "US Oncology,
Inc.," will be important to maintaining good relations with our existing
physicians and for attracting new physicians. This transition will also be
important to our efforts to maintain and enhance relationships with
pharmaceutical suppliers, payors and other third parties. We must continue to
provide management, accounting, information and other services well. If we do
not, we may have trouble continuing and improving relationships with third
parties.
RISKS RELATING TO THE CONTINUING BUSINESS OF THE COMBINED COMPANY
Failure to successfully affiliate with new physician groups or integrate the
operations of new affiliations will adversely impact the combined company's
ability to grow.
AOR and PRN have grown by affiliating with new physician groups and
expanding the operations of existing affiliated physician groups. We intend to
continue to pursue this growth strategy. Identifying appropriate physician
groups and negotiating affiliations with them can be costly. We may not be able
to affiliate with additional physician groups on desirable terms. We may
encounter difficulties integrating the operations of additional physician
groups. Additional affiliations may also harm our integration efforts in
connection with the merger. Our failure to successfully integrate newly
affiliated physician groups could harm us.
Our development of new cancer centers could be delayed or result in liabilities
which would limit our growth and could seriously harm us.
Another growth strategy of AOR and PRN is to develop integrated cancer
centers. The development of integrated cancer centers is subject to a number of
risks, including obtaining regulatory approval, delays that often accompany
construction of facilities and environmental liabilities that attach to
operating cancer centers. Any failure or delay in successfully building and
operating integrated cancer centers or in avoiding liabilities from operations
could seriously harm the combined company.
Loss of revenues by our affiliated physician groups, especially Texas Oncology,
could decrease the combined company's revenues.
AOR's and PRN's revenue depends on revenue generated by affiliated physician
groups. Loss of revenue by the affiliated physician groups could seriously harm
the combined company. It is possible that our affiliated physician groups will
not be able to maintain successful medical practices. In particular, PRN has
received a significant portion of its revenues under its service agreement with
Texas Oncology, P.A. Texas Oncology accounted for approximately 65% of PRN's
total revenues in 1998. A significant loss of revenue by Texas Oncology could
seriously harm the combined company.
19
<PAGE>
If a significant number of physicians leave our affiliated practices, the
combined company could be seriously harmed.
Each of our affiliated practices enters into employment agreements with its
physicians. We and our affiliated practices try to maintain such contracts.
However, if a significant number of physicians terminate their relationships
with our affiliated practices, the combined company could be seriously harmed.
Our affiliated practices may be unable to enforce noncompetition provisions
with departed physicians.
Most of the employment agreements between the affiliated practices and their
physicians include a clause that prevents the physician from competing with the
practice for a period after termination of employment. We cannot predict with
certainty whether a court will enforce the noncompetition covenants of the
affiliated practices. If practices are unable to enforce the noncompetition
provisions of their employment agreements, the combined company could be
seriously harmed.
If our physician groups terminated their management agreements, we would be
seriously harmed.
Our affiliated physician groups may attempt to terminate their management
agreements. If any of our larger groups were to succeed in such a termination,
we could be seriously harmed. We are aware that some physician groups have
attempted to end or restructure their affiliations with other practice
management companies when they do not have a contractual right to do so. Such
groups often argue that their affiliations violate some aspect of health care
law. For example, some physician groups affiliated with other physician
practice management companies have claimed that the management fee arrangements
violate federal or state prohibitions on splitting fees with physicians. If our
affiliated physicians or practices were able to successfully make such an
argument, the effect on our affiliations could harm us.
Loss of revenue by affiliated physician groups caused by the cost containment
efforts of third-party payors, including capitation arrangements, could
seriously harm us.
Loss of revenue by affiliated physician groups caused by the cost
containment efforts of third-party payors, including capitation arrangements,
could seriously harm us. Physician groups typically bill various third-party
payors, such as governmental programs like Medicare and Medicaid, private
insurance plans and managed care plans, for the health care services provided
to their patients. These third-party payors negotiate the prices charged for
medical services and supplies to lower the cost of health care services and
products paid for by them. Third-party payors also try to influence legislation
to lower costs. Reimbursement rates for pharmaceuticals have a major impact on
our affiliated practices. Third-party payors can also deny reimbursement for
medical services and supplies if they determine that a treatment was not
appropriate. Our affiliated practices also derive a significant portion of
their revenues from governmental programs. Reimbursement by governmental
programs generally is not subject to negotiation and is established by
governmental regulation.
Under capitation arrangements, health care providers do not receive a fee
for each medical service provided but instead receive an aggregate fee for
treating a defined population of patients. As a result, health care providers
bear the risk that the costs of providing medical services to the determined
population will exceed the payments received. The ability of the providers to
effectively manage the per patient costs affects profitability. Although
currently less than 5% of the revenues of our affiliated practices come from
capitated services, we expect capitated arrangements to become a bigger part of
our business in the future.
We could become subject to costly insurance regulations.
The combined company and its affiliated physician groups may enter into
capitation contracts with managed care organizations. The combined company and
our affiliated groups would assume risk in connection with providing healthcare
services under these arrangements. If we or our affiliated groups are
considered to be
20
<PAGE>
in the business of insurance as a result of entering into these capitation
arrangements, we and our affiliated groups could become subject to a variety of
regulatory and licensing requirements applicable to insurance companies that
could harm the combined company.
If our operations are deemed by regulators not to comply with applicable
regulations, or if restrictive new regulations are passed, we may be seriously
harmed.
There can be no assurance that a review of our business or our affiliated
physician groups by courts or by regulatory authorities would not result in
determinations that could seriously harm our operations. Further, the health
care regulatory environment could change and restrict our existing operations
or potential for expansion. The health care industry is highly regulated. We
believe our businesses and the practices of our affiliated physician groups
operate in material compliance with these regulations. However, the
relationships between us and our affiliated physician groups are unique. Many
aspects of these relationships have not been subject to judicial or regulatory
interpretation. There are currently several federal and state initiatives
designed to amend regulations relating to health care. However, we cannot
predict whether any such initiatives will be enacted as legislation or, if
enacted, what their form, effective dates or impact on us will be.
Our business, and the business of our affiliated practices, could be harmed by
competition with other businesses.
Our business, and the business of our affiliated practices, could be harmed
by competition with other businesses. The business of providing health care
related services and facilities is very competitive. Many competitors manage
oncology practices, and several health care companies with longer operating
histories and more resources are currently providing at least some management
services to oncologists. There are also other companies with substantial
resources that may decide to enter the oncology practice management business.
Furthermore, our revenues depend on the continued success of our affiliated
physician groups. The physician groups face competition from several sources,
including sole practitioners, single- and multi-specialty groups, hospitals and
managed care organizations.
We and our affiliated practices may become subject to harmful lawsuits.
Successful malpractice or products liability claims asserted against the
physician groups or us could seriously harm us. We and our affiliated physician
groups are at risk of malpractice and other lawsuits because they provide
health care services to the public. In addition, managed care providers and
physician practice management companies are increasingly subject to liability
claims arising from physician compensation arrangements and other activities
designed to control costs by reducing services. A successful claim on this
basis against us or an affiliated physician group could harm us. Lawsuits, if
successful, could result in damage awards in excess of the limits of our
insurance coverage. Insurance against losses related to claims of this type is
expensive and the cost varies widely from state to state. In addition, our
affiliated physicians prescribe and dispense pharmaceuticals and, therefore,
could be subject to products liability claims. We and our affiliated physician
groups maintain liability insurance in amounts and coverages we consider
appropriate.
Our computer systems and those of our key suppliers and service providers may
not be year 2000 compliant, which may cause system failures and disruptions of
operations.
Many existing computer programs use only two digits to identify a year in a
data field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000 or
earlier. The year 2000 issue affects us in that our business is dependent on
information technology, such as management information systems, financial and
accounting systems, and other equipment systems that may have year 2000 related
problems. The failure of our information technology systems to be year 2000
compliant could have a material adverse effect on our business, financial
condition or results of operations. In addition, the noncompliance of any of
our significant vendors, third-party or governmental payors could have a
material
21
<PAGE>
adverse effect on our business, financial condition or results of operations.
Due to the general uncertainty inherent in the year 2000 problem, resulting in
part from the uncertainty of the year 2000 readiness of third-party suppliers,
governmental agencies (in particular, the agencies responsible for
administering Medicare and Medicaid) and customers, we are unable to determine
at this time whether the consequences of year 2000 failures will seriously harm
us.
The amortization period for our intangible assets may be reduced, which would
reduce our earnings.
In connection with our affiliations with physician practices, AOR and PRN
each record an intangible amount for the price paid for assets less the value
of the tangible assets acquired. AOR and PRN have amortized, and we will
continue to amortize, these intangible assets. This results in periodic non-
cash charges to our earnings. During 1998, PRN and AOR each shortened the
amortization period of their intangible assets to 25 years. However, if there
is another change in accounting treatment for such intangibles, we would likely
be required to reduce further the number of years that the intangibles are
amortized against our earnings. This would increase the amount of amortization
expense charged against earnings each year. This increased charge, while non-
cash in nature, could significantly reduce our earnings and seriously harm our
business. We expect these non-cash amortization charges to increase in the
future as we continue our affiliation strategy. In the event that we determine
that the value of the intangible assets related to any specific affiliation is
impaired, we could be required to reduce the value of that asset, which would
result in a charge to earnings.
Our stock price may fluctuate significantly, which may make it difficult to
resell your shares when you want to at prices you find attractive.
The market prices of AOR and PRN common stock have been highly volatile.
This volatility may adversely affect the price of our common stock in the
future. You may not be able to resell your shares of common stock following
periods of volatility because of the market's adverse reaction to this
volatility. We anticipate that this volatility, which frequently affects the
stock of health care service companies, will continue. Factors that could cause
such volatility include:
. Our quarterly operating results,
. Deviations in results of operations from estimates of securities
analysts,
. General economic conditions or economic conditions specific to the
health care services industry and
. Other developments affecting competitors or us.
On occasion the equity markets, and in particular the markets for physician
management company stocks, have experienced significant price and volume
fluctuations. These fluctuations have affected the market price for many
companies' securities even though the fluctuations are often unrelated to the
companies' operating performance.
Our shareholder rights plan and anti-takeover provisions of the certificate of
incorporation, bylaws and Delaware law could adversely impact a potential
acquisition by third parties.
Our shareholder rights plan and anti-takeover provisions of the amended and
restated certificate of incorporation, bylaws and Delaware law could adversely
impact a potential acquisition by third parties. The combined company will have
a staggered board of directors, with three classes each serving a staggered
three-year term. This classification has the effect of generally requiring at
least two annual stockholder meetings, instead of one, to replace a majority of
the members of the board of directors. The combined company's amended and
restated certificate of incorporation will also provide that stockholders may
act only at a duly called meeting and that stockholders' meetings may not be
called by stockholders. These provisions could discourage potential acquisition
proposals and could delay or prevent a change in control of the combined
company. These provisions are intended to increase the likelihood of continuity
and stability in our board of
22
<PAGE>
directors and in the policies formulated by them to discourage certain types of
transactions that may involve an actual or threatened change of control of the
combined company, reduce our vulnerability to an unsolicited acquisition
proposal and discourage certain tactics that may be used in proxy fights.
However, these provisions could have the effect of discouraging others from
making tender offers for our shares, and, as a consequence, they inhibit
fluctuations in the market price of the combined company's shares that could
result from actual or rumored takeover attempts. Such provisions also may have
the effect of preventing changes in the management of the combined company.
In addition, other provisions of the combined company's amended and restated
certificate of incorporation and certain provisions of Delaware law may make it
difficult to change control of the combined company and to replace incumbent
management. For example, the combined company's amended and restated
certificate of incorporation will permit the board of directors, without
stockholder approval, to issue additional shares of common stock or to
establish one or more classes or series of preferred stock with characteristics
determined by the board. AOR has also adopted a shareholder rights plan, which
would significantly inhibit the ability of another entity to acquire control of
the combined company through a tender offer or otherwise without the approval
of the combined company's board of directors. These provisions could limit the
price that certain investors might be willing to pay in the future for shares
of common stock.
Neither PRN nor AOR has paid dividends and AOR does not expect to in the
future, which means that the value of the shares to be received in the merger
cannot be realized except through sale.
Neither PRN nor AOR has ever declared or paid cash dividends. We currently
expect to retain earnings for our business and do not anticipate paying
dividends on our common stock at any time in the foreseeable future. Because we
do not anticipate paying dividends, it is likely that the only opportunity to
realize the value of our common stock will be through a sale of those shares.
The decision whether to pay dividends on common stock will be made by the board
of directors from time to time in the exercise of its business judgment. Both
companies are currently precluded from paying dividends by the terms of their
credit facilities.
23
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AOR ANNUAL MEETING
Date, Time and Place of the AOR Annual Meeting
The AOR annual meeting will be held at 8:00 a.m., local time, on Tuesday,
June 15, 1999, at the Marriott Rivercenter, 101 Bowie Street, San Antonio,
Texas 78205.
Purpose of the AOR Annual Meeting
This joint proxy statement and prospectus is being furnished to the AOR
stockholders in connection with the solicitation of proxies on behalf of AOR's
board of directors for use at the AOR annual meeting. The purpose of the AOR
annual meeting is to consider and act upon the following proposals:
(a) the approval of the issuance of up to 50,000,000 shares of AOR
common stock in connection with the merger;
(b) the approval of AOR's amended and restated certificate of
incorporation, which includes amendments to AOR's existing certificate of
incorporation to (a) change AOR's name to US Oncology, Inc., (b) increase
the number of authorized shares of the common stock of AOR from 80,000,000
to 250,000,000 and the number of authorized shares of preferred stock from
1,000,000 to 2,000,000, (c) provide that the directors of AOR shall be
divided into three classes, each with a three-year term (except, initially,
the Class I and Class II directors), and that the directors may be removed
only for cause and upon the vote of holders of at least two-thirds of the
outstanding shares of AOR common stock, and to provide for a mechanism for
stockholder nominations of individuals to serve as directors, (d) provide
that stockholders may only act at a properly convened annual meeting or
special meeting of stockholders and specify who may call meetings of the
stockholders and (e) provide that the provisions relating to the foregoing
clauses (c) and (d) and this clause (e) may only be amended by the vote of
two-thirds of the outstanding shares of capital stock of AOR entitled to
vote in the election of directors;
(c) the approval of an amendment to AOR's 1993 Affiliate Stock Option
Plan to increase the number of shares of AOR common stock available for
issuance under that plan;
(d) the approval of amendments to AOR's 1993 Non-Employee Director Stock
Option Plan to increase the number of shares of AOR common stock available
for issuance under that plan and to effect certain other amendments more
fully set forth in this joint proxy statement and prospectus;
(e) the election of seven directors to the AOR board of directors;
(f) the approval of an amendment to AOR's 1993 Key Employee Stock Option
Plan to increase the number of shares of AOR common stock available for
issuance thereunder; and
(g) the ratification of PricewaterhouseCoopers LLP as independent
accountants for the ensuing year.
Proposals (a), (b), (c) and (d) will be effective only if the merger is
consummated and are conditions to the merger. Any other proper business may be
transacted at the AOR annual meeting or any adjournments thereof. AOR
stockholder approval of the issuance of shares in connection with the merger
is required in accordance with the rules of The Nasdaq Stock Market because
the AOR common stock to be issued in connection with the merger will be in
excess of 20% of the number of shares of AOR common stock outstanding before
such issuance.
Each copy of this joint proxy statement and prospectus is accompanied by a
form of proxy for use at the AOR annual meeting.
THE BOARD OF DIRECTORS OF AOR RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
FOREGOING PROPOSALS.
Record Date and Outstanding Shares
AOR's board of directors has fixed May 10, 1999, as the record date for the
determination of the holders of AOR common stock entitled to receive notice of
and to vote at the AOR annual meeting. Only holders of
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record of AOR common stock at the close of business on that date are entitled
to notice of, and to vote at, the AOR annual meeting. On the AOR record date,
there were 228 holders of record of AOR common stock and 35,627,773 shares of
AOR common stock issued and outstanding. See "Principal Stockholders of AOR and
PRN" for information regarding directors, certain executive officers and
persons known to management of AOR to be the beneficial owners of more than 5%
of the outstanding AOR common stock.
Votes Required for Approval; Effect of Abstentions and Non-Votes
The presence at the AOR annual meeting, in person or by proxy, of holders of
a majority of the outstanding shares of AOR common stock entitled to vote at
the meeting will constitute a quorum for the transaction of business. Each
share of AOR common stock entitles the holder thereof to one vote on each
matter submitted for stockholder approval.
Under the rules of The Nasdaq Stock Market, approval of issuance of AOR
common stock in connection with the merger requires the affirmative vote of the
holders of a majority of the shares of AOR common stock voted, in person or by
proxy, at the AOR annual meeting. Under the rules of The Nasdaq Stock Market,
brokers who hold shares in street name for customers will not have the
authority to vote on the merger agreement unless they receive specific
instructions from beneficial owners. Abstentions and broker non-votes will be
included in determining whether a quorum is present.
Adoption and approval of AOR's amended and restated certificate of
incorporation and the amendments to the 1993 Affiliate Stock Option Plan, the
1993 Non-Employee Director Stock Option Plan and 1993 Key Employee Stock Option
Plan require the affirmative vote of the holders of a majority of the
outstanding shares of AOR common stock entitled to vote on such proposal.
With respect to the election of AOR directors, the seven nominees receiving
the highest number of votes will be elected to the board of directors of AOR.
Proxies given to the persons named in the AOR form of proxy will be voted FOR
the election of the nominees listed under "Election of AOR Directors" unless
authority to vote is withheld. A stockholder entitled to vote for the election
of directors can withhold authority to vote for all nominees for director or
can withhold authority to vote for certain nominees for director. Election of
these nominees as directors is not a condition of the merger, but AOR and PRN
have agreed that if the merger is completed, the board of directors of the
combined company will be comprised of fourteen specific individuals, including
the seven named in this joint proxy statement and prospectus as nominees. See
"Election of AOR Directors--Nominees for Election as Directors" and "--
Additional Directors to be Appointed upon Consummation of the Merger."
Ratification of the appointment of PricewaterhouseCoopers LLP as AOR's
independent accountants for the ensuing year requires the vote of a majority of
the shares of AOR common stock present or represented by proxy and entitled to
vote at the AOR annual meeting. Ratification of such appointment is not a
condition to the merger.
Abstentions, directions to withhold authority and broker non-votes are
counted as shares present in the determination of whether the number of shares
of stock represented at the AOR annual meeting constitutes a quorum. In the
case of proposals requiring the affirmative vote of the holders of a majority
of shares present or represented by proxy and entitled to vote thereon,
abstentions will be counted as part of the total number of votes cast on such
proposals in determining whether the proposals have received the requisite
number of favorable votes, whereas broker non-votes will not be counted as part
of the total number of votes cast on such proposals. Thus, abstentions will
have the same effect as votes against any such proposal, whereas broker non-
votes will have no effect in determining whether any such proposal has been
approved by the stockholders. In the case of proposals such as the vote
regarding the approval of AOR's amended and restated certificate of
incorporation and the amendments to AOR's stock option plans that require the
affirmative vote of the holders of a specified percentage of outstanding
shares, both abstentions and broker non-votes will be counted as part of the
total number of votes cast on such proposals in determining whether the
proposals have been approved by the stockholders. Thus, both abstentions and
broker non-votes will have the same effect as a vote against such proposals.
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All executive officers and directors of AOR who, as of the AOR record date,
were stockholders of AOR, have agreed to vote their shares of AOR common stock
in favor of each of the foregoing proposals. As of the AOR record date, such
persons collectively had the right to vote approximately 3,302,809 shares of
AOR common stock, representing approximately 9.3% of the outstanding shares of
AOR common stock on such date. See "Principal Stockholders of AOR and PRN."
Voting and Revocation of Proxies
Stockholders of record on the AOR record date are entitled to cast their
votes, in person or by properly executed proxy, at the AOR annual meeting. All
properly executed proxies that are not revoked will be voted at the AOR annual
meeting in accordance with the instructions indicated on such proxies. If a
holder of AOR common stock executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted FOR (i) approval
of the issuance of AOR common stock in connection with the merger, (ii)
approval of AOR's amended and restated certificate of incorporation, (iii)
approval of the amendment to AOR's 1993 Affiliate Stock Option Plan, (iv)
approval of the amendments to AOR's 1993 Non-Employee Director Stock Option
Plan, (v) election of the AOR board's nominees for directors, (vi) approval of
the amendment to the 1993 Key Employee Stock Option Plan and (vii) ratification
of the appointment of PricewaterhouseCoopers LLP as AOR's independent
accountants for the ensuing year. A stockholder of AOR who has executed and
returned a proxy may revoke it at any time before it is voted at the AOR annual
meeting by (a) executing and returning a proxy bearing a later date, (b) filing
a written notice of such revocation with the Secretary of AOR stating that the
proxy is revoked or (c) attending the AOR annual meeting and voting in person.
However, no such revocation will be effective unless and until such notice of
revocation has been received by AOR at or prior to the AOR annual meeting.
AOR's board of directors is not aware of any business to be acted upon at
the AOR annual meeting other than as described in this joint proxy statement
and prospectus. If, however, other matters are properly brought before the AOR
annual meeting, or any adjournments or postponements of the annual meeting, the
persons appointed as proxies or their substitutes will have discretion to vote
or act thereon according to their best judgment and applicable law unless the
proxy indicates otherwise.
Delaware law does not require that holders of AOR common stock who object to
the issuance of AOR common stock in connection with the merger and who vote
against or abstain from voting in favor thereof be afforded any appraisal
rights or the right to receive cash for their shares. AOR does not intend to
make any such rights available to its stockholders.
Solicitation of Proxies
In addition to solicitation by mail, the directors, officers and employees
of AOR may solicit proxies from AOR stockholders by personal interview,
telephone, telegram, facsimile or otherwise. AOR will bear the costs of the
solicitation of proxies from its stockholders, except that AOR and PRN will
share equally the cost of printing this joint proxy statement and prospectus.
AOR has engaged Georgeson & Company, a proxy solicitation firm, to assist in
the solicitation of proxies from AOR stockholders. AOR will pay the fees in
connection with the solicitation by such firm, which are anticipated to be
$10,000, plus such firm's out-of-pocket expenses. Arrangements will be made
with brokerage firms and other custodians, nominees and fiduciaries who hold
AOR common stock of record for the forwarding of solicitation materials to the
beneficial owners thereof. AOR will reimburse brokers, custodians, nominees and
fiduciaries for the reasonable out-of-pocket expenses incurred by them in
connection therewith.
Adjournment of the AOR Annual Meeting
If a quorum is not present at the time the AOR annual meeting is convened,
or if for any other reason AOR's board of directors believes that additional
time should be allowed for the solicitation of proxies or for the satisfaction
of conditions to the merger agreement, AOR may adjourn the AOR annual meeting
with a vote of the majority of its stockholders present or represented at the
meeting.
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The failure to return a proxy or to vote in person will have no effect on
the vote on adjournment at the discretion of the AOR board of directors, except
to reduce the total number of votes counted. Brokers who hold shares in street
name for customers will not have the authority to vote unless they receive
specific instructions from beneficial owners. Under Delaware law, such broker
non-votes will not be counted as present for purposes of determining the number
of shares present or represented and entitled to vote on such adjournment.
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PRN SPECIAL MEETING
Date, Time and Place of the PRN Special Meeting
The PRN special meeting will be held at 8:00 a.m., local time, on Tuesday,
June 15, 1999, at the Marriott Rivercenter, 101 Bowie Street, San Antonio,
Texas 78205.
Purpose of the PRN Special Meeting
This joint proxy statement and prospectus is being furnished to the PRN
stockholders in connection with the solicitation of proxies on behalf of PRN's
board of directors for use at the PRN special meeting. The purpose of the PRN
special meeting is to consider and vote upon the proposal to approve and adopt
the merger agreement and to transact such other business as may properly come
before the PRN special meeting or any adjournments or postponements thereof.
Under the merger agreement, at the time the merger is effective, Diagnostic
Acquisition, Inc., a wholly owned subsidiary of AOR, will merge with and into
PRN, and PRN will become a wholly owned subsidiary of AOR. Each share of PRN
common stock outstanding immediately prior to the merger will be automatically
converted into the right to receive 0.94 shares of AOR common stock.
Each copy of this joint proxy statement and prospectus is accompanied by a
form of proxy for use at the PRN special meeting.
THE BOARD OF DIRECTORS OF PRN RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
Record Date and Outstanding Shares
PRN's board of directors has fixed May 10, 1999, as the record date for the
determination of the holders of PRN common stock entitled to receive notice of
and to vote at the PRN special meeting. Only holders of record of shares of PRN
common stock at the close of business on that date are entitled to notice of,
and to vote at, the PRN special meeting. On the PRN record date, there were 504
holders of record of PRN common stock and 51,895,721 shares of PRN common stock
issued and outstanding. See "Principal Stockholders of AOR and PRN" for
information regarding directors, certain executive officers and persons known
to management of PRN to be the beneficial owners of more than 5% of the
outstanding PRN common stock.
Votes Required for Approval; Effect of Abstentions and Non-Votes
The presence at the PRN special meeting, in person or by proxy, of holders
of a majority of the outstanding shares of PRN common stock entitled to vote at
the meeting will constitute a quorum for the transaction of business. Each
share of PRN common stock is entitled to one vote per share with respect to the
merger agreement and on each other matter properly submitted at the PRN special
meeting. Under Texas law, approval and adoption of the merger agreement by the
stockholders of PRN requires the affirmative vote of at least two-thirds of the
issued and outstanding shares of PRN common stock as of the PRN record date.
Stockholder approval of the merger agreement is being solicited in accordance
with the rules of The Nasdaq Stock Market.
Under the rules of The Nasdaq Stock Market, brokers who hold shares in
street name for customers will not have the authority to vote on the merger
agreement unless they receive specific instructions from beneficial owners.
Abstentions and broker non-votes will be included in determining whether a
quorum is present. Abstentions and broker non-votes will have the same effect
as a vote against the merger agreement.
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Each of the executive officers and directors of PRN holding shares of PRN
common stock has agreed to vote his or her shares in favor of the merger
agreement. Collectively, the executive officers, directors and certain
significant stockholders have agreed to vote their shares of PRN common stock
(14,940,773 shares as of the PRN record date), representing approximately 28.8%
of the outstanding shares of PRN common stock, in favor of the merger
agreement. See "Principal Stockholders of AOR and PRN."
Voting and Revocation of Proxies
Stockholders of record on the PRN record date are entitled to cast their
votes, in person or by properly executed proxy, at the PRN special meeting. All
shares of PRN common stock represented at the PRN special meeting by properly
executed proxies received at or prior to the PRN special meeting, unless
properly revoked, will be voted at the PRN special meeting in accordance with
instructions indicated on such proxies. If a proxy is signed and returned
without indicating any voting instructions, shares of PRN common stock
represented by the proxy will be voted FOR approval of the merger agreement.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted by any action inconsistent with
the proxy, including notifying the Corporate Secretary of PRN in writing,
executing a subsequent proxy or personally appearing at the PRN special meeting
and casting a contrary vote. However, no such revocation will be effective
unless and until such notice of revocation has been received by PRN at or prior
to the PRN special meeting.
The board of directors of PRN is not aware of any business to be acted upon
at the PRN special meeting other than as described in this joint proxy
statement and prospectus. If, however, other matters are properly brought
before the PRN special meeting, or any adjournments or postponements of the
special meeting, the persons appointed as proxies or their substitutes will
have discretion to vote or act thereon according to their best judgment and
applicable law unless the proxy indicates otherwise.
Texas law does not require that holders of PRN common stock who object to
the merger and who vote against or abstain from voting in favor of the merger
be afforded any appraisal rights or the right to receive cash for their shares.
PRN does not intend to make any such rights available to its stockholders.
Solicitation of Proxies
In addition to solicitation by mail, the directors, officers and employees
of PRN may solicit proxies from its stockholders by personal interview,
telephone, telegram, facsimile or otherwise. PRN will bear the costs of the
solicitation of proxies from its stockholders, except that AOR and PRN will
share equally the cost of printing this joint proxy statement and prospectus.
PRN has engaged D.F. King & Co., Inc., a proxy solicitation firm, to assist in
the solicitation of proxies from PRN stockholders. PRN will pay the fees in
connection with the solicitation by such firm which are anticipated to be
$7,000, plus such firm's out-of-pocket expenses. Arrangements will be made with
brokerage firms and other custodians, nominees and fiduciaries who hold PRN
common stock of record for the forwarding of solicitation materials to the
beneficial owners thereof. PRN will reimburse brokers, custodians, nominees and
fiduciaries for the reasonable out-of-pocket expenses incurred by them in
connection therewith.
Adjournment of the PRN Special Meeting
If a quorum is not present at the time the PRN special meeting is convened,
or if for any other reason PRN's board of directors believes that additional
time should be allowed for the solicitation of proxies or for the satisfaction
of conditions to the merger agreement, PRN may adjourn the PRN special meeting
with a vote of the majority of its stockholders present or represented at the
meeting.
The failure to return a proxy or to vote in person will have no effect on
the vote on adjournment at the discretion of PRN's board of directors, except
to reduce the total number of votes counted. Brokers who hold shares in street
name for customers will not have the authority to vote unless they receive
specific instructions from beneficial owners. Under Texas law, such broker non-
votes will not be counted as present for purposes of determining the number of
shares present or represented and entitled to vote on such adjournment.
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THE MERGER
The detailed terms and conditions of the merger, including conditions to
completing the merger, are contained in the merger agreement, which is attached
hereto as Appendix A and incorporated herein by reference. The following
discussion sets forth a description of the material terms and conditions of the
merger. The description in this joint proxy statement and prospectus of the
terms and conditions of the merger is qualified in its entirety by reference to
the merger agreement.
General Description of the Merger
The merger agreement provides that, at the effective time of the merger,
Diagnostic Acquisition, Inc. will merge with and into PRN, and that PRN will
become a wholly owned subsidiary of AOR. In the merger, each outstanding share
of PRN common stock will be converted into 0.94 shares of AOR common stock. In
addition, at the time the merger becomes effective, each issued and outstanding
share of Diagnostic Acquisition, Inc. common stock shall be converted into one
share of common stock of the surviving corporation. After the merger, PRN will
continue to exist as a corporate subsidiary of AOR.
Based upon the number of shares of AOR common stock and PRN common stock
outstanding as of May 10, 1999 on a fully-diluted basis, approximately 101.3
million shares of AOR common stock will be outstanding immediately following
effectiveness of the merger on a fully-diluted basis, of which approximately
50% on a fully-diluted basis, will be held by former holders of PRN common
stock.
Background of the Merger
The past several years have been marked by rapid change in the health care
industry generally and the physician practice management sector specifically.
These changes were driven by intensifying competition, increasing governmental
regulation, reductions in reimbursements for healthcare services and
difficulties in effectively building and operating physician networks. During
this period, AOR and PRN recognized these changes and have taken steps to
maintain and enhance their long-term competitive position and profitability in
the face of these industry conditions. Each company intensified its focus on
its core strategic initiatives by affiliating with new oncology groups and
efficiently expanding the operations of those groups, constructing
comprehensive cancer centers and building its clinical research operations. As
of result of this focus, each company continued to improve its financial
condition and results of operations.
Also during this period, AOR and PRN each diligently reviewed its strategic
alternatives. Each company believed that it could continue to operate
profitably as an independent company. AOR and PRN, however, each considered
merging with the other. AOR and PRN have believed for some time that a
combination of the two companies would represent a unique strategic fit and
enhance their competitive and strategic position. The companies shared this
belief for a number of reasons. First, AOR and PRN are the largest participants
in the oncology management sector, and a combination of the two would create
the leading cancer management company in the United States. Second, the
companies shared common strategies and demonstrated an ability to execute on
those strategies. Third, each company had a commitment to a consistent,
disciplined affiliation and operational model with its network of oncology
groups. Fourth, many of each company's affiliated physicians often encouraged a
combination of the two companies.
Each company also analyzed opportunities to acquire other, smaller oncology
practice management companies, but decided that these acquisitions would not be
in that company's best interest. AOR and PRN each believed that acquiring these
smaller companies posed significant integration risk. The respective management
of AOR and PRN believed these potential acquisition targets were less
disciplined in affiliating with and managing oncology groups and that the
smaller companies' affiliated physicians' incentives were less aligned with
those of the management company.
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Representatives of AOR and PRN discussed a number of times the potential for
a business combination. While members of senior management of AOR and PRN met
from time to time at investor conferences, industry functions and elsewhere,
there have been four distinct periods where AOR and PRN specifically discussed
a possible combination of the two companies, culminating with the signing of
the merger agreement.
In June and July 1997, after R. Dale Ross, AOR's Chairman of the Board and
Chief Executive Officer, initially contacted Merrick Reese, M.D., PRN's then
Chairman of the Board and Chief Executive Officer, members of senior management
of AOR and PRN had their initial discussions regarding a possible combination
of the two companies and discussed possible exchange ratios and corporate
governance matters. In June 1997, AOR and PRN entered into a confidentiality
agreement generally (a) providing that any confidential information provided by
one party to the other would be kept confidential by the receiving party, (b)
limiting the ability of each party for eighteen months to acquire any voting
securities or assets of, or solicit proxies or make a public announcement of a
proposal for an extraordinary transaction with respect to, the other party and
(c) limiting the ability of each party for 60 days from soliciting, negotiating
or otherwise facilitating a competing acquisition transaction. On July 8, 1997,
PRN engaged Goldman Sachs on an exclusive basis to act as its financial advisor
in connection with the possible merger with or sale of all or a portion of PRN
to AOR. Pursuant to this engagement, Goldman Sachs agreed to provide PRN with
financial advice and assistance in connection with a potential transaction with
AOR, including performing valuation analyses, coordinating visits of
representatives of AOR and assisting PRN in negotiating the financial aspects
of any proposed transaction with AOR. For several weeks following the execution
of the confidentiality agreement, members of senior management of AOR and PRN
and their professional advisors conducted significant due diligence and began
negotiating a definitive merger agreement. The parties, however, terminated
their discussions in August 1997 because of disagreements regarding an
appropriate exchange ratio, corporate governance matters and other concerns.
In September 1997, PRN began a process of enhancing its senior management
team: John Casey was hired as Chief Executive Officer, Edwin French was hired
as President and Chief Operating Officer and additional management was added
during the balance of 1997. Concurrent with the changes in management, PRN
initiated discussions with Texas Oncology, P.A. to formalize, in an amended
service agreement, certain financial and management relationships not then
addressed in the existing service agreement. This process was concluded in
December 1998 when Texas Oncology, P.A. and PRN executed the Second Amended and
Restated Service Agreement effective November 1, 1998.
The second series of negotiations began in March 1998 when senior management
of AOR and PRN renewed their discussions regarding the possibility of a
business combination. On March 24, 1998, AOR and PRN entered into a second
confidentiality agreement substantially similar to the agreement executed in
June 1997. In April 1998, members of senior management of AOR and PRN and their
professional advisors met in Dallas to conduct business and financial due
diligence and negotiate terms of a possible merger. The parties terminated
negotiations in April 1998 due to disagreements regarding the exchange ratio
and corporate governance matters.
The third series of discussions occurred in July 1998. Senior management of
AOR and PRN, together with their respective financial advisors, met in Dallas
to reiterate each company's view that a combination of the two companies would
enhance their long-term prospects, and to attempt to agree on the economic
terms and other issues, including the composition of the board of directors,
the composition of the management team and the location of the principal
executive offices. AOR and PRN could not reach agreement on these terms, and
the parties once again terminated negotiations.
The fourth series of negotiations began on November 20, 1998 when John T.
Casey, PRN's Chairman of the Board and Chief Executive Officer, called R. Dale
Ross, AOR's Chairman of the Board and Chief Executive Officer, to discuss the
possibility of pursuing further discussions regarding a potential transaction
between the two companies. Mr. Ross and Mr. Casey then agreed to meet in
Houston on November 23, 1998.
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At the November 23 meeting, Mr. Casey and Mr. Ross discussed the strategic
benefits of combining AOR and PRN and outlined the synergies that might accrue
to a combined entity. Mr. Ross and Mr. Casey also began to outline the
principal terms of the proposed merger, focusing on corporate governance
matters and economic terms. The executives then agreed to discuss with their
respective boards of directors whether to reinitiate negotiations regarding a
potential merger. After speaking with members of their respective boards, Mr.
Casey and Mr. Ross agreed to meet, together with other members of senior
management, in Dallas on November 25, 1998.
On November 25, 1998, members of senior management of AOR and PRN, together
with a representative of Goldman Sachs, met in Dallas to discuss the terms of
the proposed merger. At that meeting, the parties discussed three possible
exchange ratios: first, an exchange ratio of 0.88, which would be non-dilutive
to AOR, without giving effect to any synergies or operating efficiencies;
second, an exchange ratio of 0.94, which would result in PRN's stockholders'
owning fifty percent of the combined company on a fully diluted basis; and
third, a one-for-one exchange ratio. After discussion, the parties
preliminarily agreed to a 0.94 exchange ratio and to the location of the
principal executive offices and the composition of the management team. The
parties also discussed due diligence issues, the structure of the transaction
and a proposed schedule, with the goal of finalizing due diligence and the
merger agreement by December 11, 1998. The parties agreed to reconvene in
Dallas on December 1, 1998 and, in the interim, to prepare drafts of the
definitive documents and to compile and organize appropriate due diligence
materials. At that time, AOR also preliminarily engaged BT Alex. Brown to act
as its financial advisor in connection with the proposed merger.
On December 1, 1998, members of senior management of AOR and PRN, together
with their respective financial, accounting and legal advisors, met in Dallas
and, except for December 6, met each day through December 10. During this
period, the parties: (a) negotiated the principal terms of the transaction,
including, but not limited to, economic terms, composition of the combined
company's board of directors and committees thereof, composition of the
management team, location of its principal executive offices and termination
arrangements; (b) negotiated the terms of the definitive merger agreement and
ancillary documents, including the combined company's amended and restated
certificate of incorporation and bylaws, affiliate agreements and stock option
agreements; (c) performed further due diligence; (d) analyzed both short-term
and long-term efficiencies and synergies that could result after completion of
the merger; (e) discussed how to efficiently integrate the operations of AOR
and PRN; and (f) determined how to appropriately and effectively communicate
the terms of the merger to affiliated physicians and the investor community.
Also during the period, Mr. Ross and Mr. Casey frequently communicated with
members of their respective boards of directors regarding the status of
negotiations and the proposed terms of the combination. On December 4, PRN held
a special meeting of its board of directors to review certain due diligence
matters and to review and consider the preliminary terms of the proposed
transaction.
On December 11, 1998, AOR finalized its engagement of BT Alex. Brown on an
exclusive basis to act as AOR's financial advisor in connection with a possible
merger, consolidation or any other business combination involving AOR and PRN.
Pursuant to this engagement, BT Alex. Brown agreed to advise AOR on (a) an
evaluation of PRN, (b) the economic terms relating to any transaction between
AOR and PRN, (c) the structure of the proposed transaction with PRN and (d)
negotiations relating to any financial aspects of the proposed transaction.
On December 11, 1998, AOR held a special meeting of its board of directors
to consider the approval of the merger and the merger agreement and related
agreements. At the special meeting of AOR's board of directors, members of
senior management described in detail the history of the negotiations, the
terms of the transaction (specifically including economic matters, corporate
governance terms and termination fees and arrangements), the due diligence
process and the anticipated synergies resulting from the merger. AOR's board of
directors also reviewed the terms of the Second Amended and Restated Service
Agreement between PRN and Texas Oncology, P.A. BT Alex. Brown then presented to
AOR's board of directors its financial analysis of the proposed transaction and
described certain aspects of the methodology it employed to analyze the
proposed merger of AOR and PRN. BT Alex. Brown delivered its oral opinion,
which was subsequently confirmed in
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writing on December 11, 1998 and May 10, 1999, that as of such date and based
on the assumptions made and matters considered in, and the limitations on, the
review undertaken by BT Alex. Brown, the exchange ratio was fair, from a
financial point of view, to the AOR stockholders. AOR's legal counsel then
discussed the board of directors' fiduciary duties to AOR's stockholders in
considering the business combination and summarized the merger agreement and
related documents. After consideration of the opinion of BT Alex. Brown and
additional analysis of the other information presented, the members of AOR's
board of directors unanimously approved the merger agreement and related
transactions.
On December 11, 1998, PRN held a special meeting of the board of directors
to consider the proposed transaction and the terms of the definitive merger
agreement, the stock option agreements and the related documents. At the
meeting of PRN's board of directors, members of senior management and legal,
financial and accounting advisors addressed, among other things: legal
obligations and duties of the directors and executive officers; an analysis of
PRN's business operations; an analysis of AOR's business operations and AOR's
historical common stock performance; the due diligence process relating to
business operations, financial and accounting and legal review; anticipated
synergies as a result of the transaction; a description of the proposed
transaction; an analysis of the tax and accounting treatment of the proposed
transaction; and a review of each of the principal transaction documents. In
addition, Goldman Sachs reviewed with PRN's board of directors the financial
analyses performed by Goldman Sachs and rendered to the PRN board its oral
opinion, which was subsequently confirmed by a written opinion dated December
11, 1998. The Goldman Sachs written opinion stated that, as of such date, and
based upon and subject to the various qualifications and assumptions described
in the written opinion, the exchange ratio was fair from a financial point of
view to the holders of PRN common stock. After consideration of all matters
presented to PRN's board of directors, the members of the PRN board of
directors unanimously approved the merger agreement and the related
transactions.
On December 13, AOR and PRN executed and delivered the merger agreement and
stock option agreements. On the morning of December 14, AOR and PRN issued a
joint press release announcing the execution of the merger agreement.
Joint Reasons for the Merger
AOR and PRN believe that the merger of the nation's two leading cancer
practice management companies will create significant value for their
respective stockholders. AOR and PRN have a unique opportunity to take
advantage of the complementary strategic fit of their businesses, combining
AOR's and PRN's operations to create the clear leader in cancer management. We
expect that our complementary skills and affiliated practices will allow our
affiliated physicians to more effectively serve patients' needs and allow us to
more efficiently provide management services to affiliated physician groups.
The boards of directors of AOR and PRN believe that the merger represents a
unique strategic fit between two companies with similar business strategies and
corporate cultures and with complementary operations and geographical presence.
Both boards of directors believe that AOR and PRN, as a combined company, will
have greater financial strength, operational efficiencies, earning power and
growth potential than either AOR or PRN would have on its own. The AOR board
and the PRN board identified a number of potential benefits of the merger that
they believe will contribute to the success of the combined company and thus
inure to the benefit of stockholders of both companies. The boards of directors
of AOR and PRN estimate that, based on internal estimates of the management of
both companies, the combination of AOR and PRN should result in an additional
$12.0 million of pre-tax earnings in the year 2000, without giving effect to
any transaction, integration and restructuring costs related to the merger. The
expected increase in earnings anticipates that the combined company (a) will
have lower general and administrative costs as a percentage of revenue, (b)
will be able to obtain drugs at a lower price than either company could on its
own and (c) will be able to capitalize on each company's separate strengths.
There can be no assurance as to whether such earnings will be realized or as to
the timing or amount, if any, of such additional earnings. The potential
benefits are described in more detail as follows:
Synergies of the Combined Company. Management of AOR and PRN believe that
the merger should result in a number of important synergies, including the
opportunity to leverage certain financial and administrative
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<PAGE>
functions over a larger operational and revenue base. In evaluating the merger,
each board of directors also considered the desirability of other potential
savings from the integration of the companies' operations, including
administrative cost savings through elimination of duplicative positions and
geographic and other efficiencies resulting from the merger.
Although the combined company will seek to reduce expenses by combining
overlapping functions and facilities, each company's board of directors
anticipates potential revenue growth and cost savings resulting from the
combined company's increased negotiating power with payors and suppliers to be
more important than any initial synergies resulting from reductions in
expenses. Each company's board of directors also recognizes the challenges
inherent in combining two complex organizations. These were considered by each
board of directors and are discussed in more detail below and in "Risk
Factors."
Complementary Operations. Both AOR and PRN are engaged in the management of
physician practices specializing in oncology and radiology. Although both AOR
and PRN have operations that are national in scope, the locations and
specialties of their affiliated physician groups are highly complementary. For
example, relative to AOR, more PRN physicians practice radiation oncology,
while AOR has more physicians performing medical oncology, including stem cell
transplantation. By combining diverse skills such as these within a single
network, physicians affiliated with the combined company will be able to more
effectively serve patients and capitalize on a number of opportunities. In
addition, the geographic markets served by the companies are highly
complementary, with very few overlapping markets. Both boards of directors
considered the strategic fit between the markets served by AOR and those served
by PRN and the services provided by each of them and believe that a combination
of AOR and PRN will result in the potential for accelerated growth and further
operational efficiencies by allowing the combined company to expand and link
existing service and practice areas. In addition, the companies' skills at the
corporate level are complementary. From a development point of view, a key
strength of AOR has been its ability to rapidly affiliate with new physician
groups. At the same time, PRN has more experience integrating medical
oncologists and radiation oncologists in cancer centers as a means of
expansion. The combined company will be able to grow through both of these
strategies.
Benefits of Increased Size on Expanded Operations. Based on the number of
cancer cases currently treated by each company's affiliated physicians, we
anticipate that the physicians affiliated with the combined company will treat
approximately 13% of new cancer cases in the United States in the year 2000.
This increased size will positively impact the businesses of AOR and PRN in
several ways:
. AOR and PRN each have well-developed clinical research programs. The
increased size of the combined company will approximately double the
number of patients available for clinical trials, thus enhancing the data
collected in clinical trials and making the combined company a more
attractive clinical research partner.
. We believe that the combined company will have more leverage in
negotiating with pharmaceutical suppliers than either AOR or PRN as a
stand-alone company. Pharmaceutical costs represent our affiliated
groups' largest expense.
. We believe that the combined company will have more leverage in
negotiating contracts with payors on behalf of affiliated physicians.
. We believe that the larger, more diversified combined company will have
an increased ability to attract and affiliate with physicians and
physician groups throughout the United States.
AOR's Reasons for the Merger
At its meeting held on December 11, 1998, AOR's board of directors
unanimously approved the merger, the merger agreement and related transactions.
AOR's board of directors believes that the merger agreement and the terms of
the merger are fair to, and in the best interests of, AOR and the AOR
stockholders and recommends that the stockholders of AOR vote FOR the matters
relating to the merger agreement and related transactions.
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<PAGE>
In reaching its determination, the AOR board of directors consulted with
AOR's management and its financial and legal advisors. In connection with this
consultation, the board considered estimates prepared by management of AOR's
expected earnings as an independent company in 1999, 2000 and beyond. These
estimates assumed that AOR's earnings would continue to grow at or near the
growth rate of prior years. The AOR board of directors also considered that the
PRN merger would be dilutive to AOR's earnings, without giving effect to any
operating efficiencies or synergies. The board of directors then considered the
expected synergies resulting from the merger, and based on such matters,
considered the following factors:
. the expectation that the merger will be accretive to earnings per share
of AOR in 1999 and 2000, taking into account anticipated synergies, but
excluding the effect of transaction, integration and restructuring
charges related to the merger;
. that after the merger, the combined company will have an improved balance
sheet and greater financial flexibility and access to capital than AOR
had on a stand alone basis, which AOR management believes will result in
improved liquidity and debt capacity;
. the continued involvement of key members of AOR management in the
management of the combined company;
. the accounting treatment of the merger as a pooling of interests; and
. the opinion of BT Alex. Brown to the AOR board of directors. The oral
opinion of BT Alex. Brown was subsequently confirmed in writing on
December 11, 1998 and May 10, 1999. A copy of the opinion dated May 10,
1999 is included as Appendix C to this joint proxy statement and
prospectus and should be read carefully and in its entirety.
In reaching the determination that the merger and related transactions are
fair to, and in the best interests of, AOR and its stockholders, the AOR board
of directors considered a number of other factors. First, the board of
directors considered the strategic, operational and financial opportunities
available to AOR in the normal course of its business compared to those that
might be available following the merger. For example, the AOR board of
directors considered that by merging AOR and PRN, the combined company would
have an opportunity to accelerate development of AOR's initiatives regarding
information management, such as data collection technology, health outcome
studies and development of clinical protocols. Second, the AOR board of
directors examined the historical and current market prices of AOR common stock
and PRN common stock. Third, the AOR board of directors analyzed the proposed
structure of the transaction and the other terms of the merger agreement,
specifically including economic matters, termination fees and corporate
governance arrangements.
AOR's board of directors also considered certain countervailing factors in
its deliberations concerning the merger, including: (i) possible difficulties
integrating the two companies' managements and corporate cultures; (ii) the
possible distraction of management and key employees from AOR's day-to-day
business and possible loss of momentum in affiliating with new physician groups
as a result of the redeployment of personnel and resources to the merger; (iii)
the fact that on a pro forma basis Texas Oncology, P.A. would account for
approximately 31% of the combined company's revenues for 1998, significantly
more than any existing AOR physician group; and (iv) the fact that the exchange
ratio will not be adjusted even if the two companies' performance and financial
condition diverge in the period prior to the merger. In respect of the
countervailing factor identified in (i) above, the companies have established
joint transition teams, retained an outside consultant and implemented
transition plans to achieve an orderly transition. In respect of the
countervailing factor described in (ii) above, the companies' joint transition
teams and outside consultant should help to ease unnecessary management
distractions, and the AOR board of directors determined that some refocusing of
management efforts on the merger was warranted in light of the expected
benefits to the combined company of the merger. In respect of the
countervailing factor described in clause (iii) above, the AOR board of
directors reviewed the amendment to PRN's service agreement with Texas
Oncology, P.A. In addition, the merger, and the addition of Texas Oncology,
P.A. in particular, represents a unique opportunity for AOR, in the context of
the combined company, to diversify its physician base by significantly
increasing the number of its physicians who practice radiation oncology and
diagnostic radiology, areas which are generally less susceptible to
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<PAGE>
increases in pharmaceutical costs than medical oncology. In respect of the
countervailing factor identified in clause (iv) above, AOR's board of directors
expects the merger to provide long-term strategic benefits that would
counterbalance any short-term divergence in financial performance of either
company.
AOR's board of directors also considered certain other risks and potential
disadvantages associated with the merger, including the risk that the
operations of the two companies may not be successfully integrated, the risk
that anticipated cost savings may not be realized to the degree anticipated,
the risk that the business combination might not be completed as a result of a
failure to satisfy the conditions to the merger agreement and other matters
described under "Risk Factors." In the judgment of AOR's board of directors,
the potential benefits of the merger outweigh these considerations.
At the December 11, 1998 meeting, the AOR board of directors received an
oral opinion from BT Alex. Brown, which opinion was subsequently confirmed in
writing on December 11, 1998 and May 10, 1999, that the exchange ratio was fair
as of such date, from a financial point of view, to the stockholders of AOR.
See "--Opinion of AOR's Financial Advisor."
The foregoing discussion of the information and factors considered by the
AOR board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the merger, the AOR board did
not find it practicable to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the AOR board may have given different weights
to the different factors.
Recommendation of the Board of Directors of AOR
For the reasons set forth under "--Joint Reasons for the Merger" and
"--AOR's Reasons for the Merger," the board of directors of AOR believes that
the terms of the merger agreement and the merger are fair to, and in the best
interests of, AOR and the holders of AOR common stock. All members of the board
of directors of AOR approved the merger agreement and have agreed to vote their
shares of AOR common stock in favor of the proposals contained in this joint
proxy statement and prospectus. The AOR board unanimously recommends that the
holders of AOR common stock vote "FOR" approval of the issuance of AOR common
stock in connection with the merger agreement.
PRN's Reasons for the Merger
PRN's board of directors has unanimously approved the merger and the merger
agreement and related transactions. The PRN board of directors believes that
the merger agreement and the terms of the merger are fair to, and in the best
interests of, PRN and the PRN stockholders and recommends that the PRN
stockholders vote FOR approval of the merger agreement.
In reaching its determination, PRN's board of directors consulted on
numerous occasions with PRN's management, as well as PRN's financial and legal
advisors, considered a variety of factors, including those set forth above in
"Joint Reasons for the Merger" and considered other factors associated with the
merger. The factors considered by PRN's board of directors include those
described below:
PRN's board of directors considered historical and prospective information
concerning the business, results of operations, financial condition and
prospects of AOR. PRN's board of directors also considered the strategic
alternatives available to PRN.
PRN's board of directors considered the strategic reasons for the merger. In
addition to the strategic reasons identified above in "Joint Reasons for the
Merger," PRN's board of directors considered the following additional strategic
merits of the merger:
. the belief that the combined company will be able to generate
greater revenues and income from research activities than PRN or
AOR could generate as independent companies;
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<PAGE>
. the belief that the combined company will have greater depth of
management in an industry that has historically experienced
challenges generated by a lack of experienced management teams;
. the belief that the combined company will be able to grow at a
rate and in a more efficient manner than otherwise could be
achieved by either PRN or AOR as independent companies;
. the belief that the combined company will have enhanced
capabilities to gather, analyze and utilize clinical data;
. the belief that the combined company will provide improved
services to affiliated physicians;
. the fact that the combined company will be less dependent than PRN
as an independent company on the success of any single physician
group; and
. the belief that the combined company will have additional
resources to devote to expanding the radiology businesses of PRN
and AOR.
PRN's board of directors also considered the impact the merger will have on
PRN stockholders. In particular, the merger is expected to be treated as a tax-
free transaction to PRN and its stockholders, and the exchange ratio represents
a premium over the price of the PRN common stock. PRN's board of directors also
believes that as a result of the combined company's increased market
capitalization, there will be a wider range of institutions that will consider
an investment in the combined company and that there may be less volatility in
the stock price of the combined company.
PRN's board of directors considered the historical stock price performance
and trading volume of AOR for (1) the preceding six months ending December 11,
1998, (2) the preceding year and (3) the period since AOR's initial public
offering in 1995. Furthermore, the directors (a) analyzed AOR's historical
trading price to earnings ratios, (b) reviewed published earnings estimates for
AOR's projected earnings for 1998, 1999 and 2000, and (c) reviewed management
and institutional investor ownership of AOR's common stock. In addition, the
PRN board of directors considered the fixed exchange ratio and the fact that
the market price of AOR common stock might move up and/or down from the market
price immediately prior to announcement of the transaction.
PRN's board of directors considered the presentation and oral opinion
delivered by Goldman Sachs that as of December 11, 1998, the exchange ratio of
0.94 was fair from a financial point of view to the holders of PRN common
stock. Goldman Sachs subsequently confirmed its oral opinion with its written
opinion. See "--Opinion of Financial Advisor of PRN."
In addition, PRN's board of directors considered the transaction structure
which results in the PRN stockholders owning approximately 50% of the combined
company's stock on a fully-diluted basis. This ownership permits the PRN
stockholders, as a whole, to participate equally with the AOR stockholders, as
a whole, in any value created by the strategic combination of the two companies
and further supports the combination as a true "merger of equals." PRN's board
of directors believes that the combination of these two companies is a
strategic opportunity to create significant value for its stockholders and that
owning 50% of the combined business was of significant importance to the
transaction structure.
PRN's board of directors also considered factors that may be characterized
as countervailing considerations, including (a) the risks inherent in
attempting to integrate the operations of PRN and AOR; (b) the possibility that
the merger may not be consummated; (c) the risk that PRN may suffer employee
attrition as a result of entering into the merger agreement; (d) the
differences in the management team of the combined company when compared to the
management team of PRN; (e) the risk of market price decline in AOR's common
stock reducing the market value of the consideration received at the time of
the merger as a result
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of a fixed exchange ratio; and (f) the costs associated with the merger,
including the costs of integrating the operations of PRN and AOR.
The foregoing discussion of the information and factors considered by PRN's
board of directors is not intended to be exhaustive but is believed to include
the material factors considered by the PRN board of directors. In addition, in
reaching the determination to approve and recommend approval and adoption of
the merger agreement, in view of the wide variety of factors considered in
connection with its evaluation of the merger, the PRN board of directors did
not assign any relative or specific weights to the foregoing factors, and
individual directors may have given different weights to the various factors.
The PRN board of directors did not attempt to analyze the fairness of the
exchange ratio in isolation from other considerations relating to the
combination of the businesses of PRN and AOR, the strategic merits of the
merger or the other factors considered. The PRN board of directors did rely
upon the analyses performed by, and the opinion rendered by, Goldman Sachs as
to the fairness, from a financial point of view, of the exchange ratio of 0.94.
The PRN board of directors did not distinguish between factors that supported
the determination that the merger is fair and those that supported the
determination that the merger is in the best interests of PRN's stockholders.
Recommendation of the Board of Directors of PRN
For the reasons set forth under "--Joint Reasons for the Merger" and "--
PRN's Reasons for the Merger," the board of directors of PRN believes that the
merger agreement is fair to, and in the best interests of, PRN and the holders
of PRN common stock. All members of the PRN board approved the merger agreement
and have agreed to vote their shares of PRN common stock in favor of the merger
agreement. The PRN board unanimously recommends that the holders of PRN common
stock vote "FOR" approval and adoption of the merger agreement.
In considering the recommendation of the PRN board of directors with respect
to the merger, PRN stockholders should be aware that certain officers and
directors of PRN have direct and indirect interests in the consummation of the
merger, apart from their interests as stockholders of PRN, which are separate
from those of unaffiliated stockholders of PRN. See "Some Officers, Directors
and Significant Stockholders of PRN Have Interests in the Merger Other Than as
Stockholders."
Opinion of AOR's Financial Advisor
AOR engaged BT Alex. Brown to act as its exclusive financial advisor in
connection with the merger based on BT Alex. Brown's long-standing relationship
with AOR and its reputation, expertise and experience in similar transactions.
On December 11, 1998, at a meeting of the AOR board of directors held to
evaluate the proposed merger, BT Alex. Brown rendered to the AOR board of
directors an oral opinion, which opinion was subsequently confirmed in writing
on December 11, 1998 and May 10, 1999, to the effect that, as of such date and
based upon and subject to certain matters stated in such opinions, the exchange
ratio was fair, from a financial point of view, to the holders of AOR common
stock. On December 11, 1998 and May 10, 1999, BT Alex. Brown delivered to the
AOR board of directors its written opinions, dated as of such dates that, based
on the assumptions, matters considered and limits of review set forth therein,
the exchange ratio was fair, from a financial point of view, to the holders of
AOR common stock. The May 10, 1999 opinion is substantially similar to the
opinion dated December 11, 1998. No limitations were imposed by the AOR Board
of Directors upon BT Alex. Brown with respect to the investigations made or the
procedures followed by it in rendering its opinion.
The full text of the written opinion of BT Alex. Brown dated as of May 10,
1999, which sets forth the assumptions made, matters considered and limitations
of the review undertaken, is attached as Appendix C to this joint proxy
statement and prospectus and is incorporated herein by reference. BT Alex.
Brown's opinion is directed to the AOR board of directors, addresses only the
fairness of the exchange ratio of 0.94 from a financial point of view, and does
not constitute a recommendation to any stockholder as to how such stockholder
should vote at the AOR annual meeting. The summary of the
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opinion of BT Alex. Brown in this joint proxy statement and prospectus is
qualified in its entirety by reference to the full text of such opinion.
Holders of AOR common stock are urged to, and should, read the BT Alex. Brown
opinion carefully and in its entirety.
In connection with its opinion, BT Alex. Brown:
. reviewed certain publicly available financial information and other
information concerning AOR and PRN and certain internal analyses and
other information furnished to or discussed with BT Alex. Brown by AOR
and PRN;
. held discussions with members of the senior managements of AOR and PRN
regarding the business and prospects of their respective companies and
the joint prospects of a combined company;
. reviewed the reported prices and trading activity for AOR common stock
and PRN common stock;
. compared certain financial and stock market information for AOR and PRN
with similar information for certain other selected companies whose
securities are publicly traded;
. reviewed the financial terms of certain recent business combinations
which it deemed comparable in whole or in part;
. reviewed the terms of the merger agreement and certain related
documents; and
. performed such other studies and analyses and considered such other
factors as it deemed appropriate.
BT Alex. Brown did not assume responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning AOR, PRN or the combined company,
including, without limitation, any financial information, forecasts or
projections considered in connection with rendering of its opinion.
Accordingly, for purposes of its opinion, BT Alex. Brown assumed and relied
upon the accuracy and completeness of all such information and has not
conducted physical inspection of any of the properties or assets, and has not
prepared or obtained any independent evaluation or appraisal of any of the
assets or liabilities, of AOR or PRN. With respect to the financial forecasts
and projections, including the analyses and forecasts of certain synergies
expected by AOR and PRN to be achieved as a result of the merger, made
available to BT Alex. Brown and used in its analyses, BT Alex. Brown has
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of AOR or PRN, as
the case may be, as to the matters covered thereby. In rendering its opinion,
BT Alex. Brown expresses no view as to the reasonableness of such forecasts and
projections, including the synergies, or the assumptions on which they are
based. BT Alex. Brown's opinion was necessarily based upon economic, market and
other conditions as in effect on, and the information made available to it as
of, the date thereof.
For purposes of rendering its opinion, BT Alex. Brown assumed that, in all
respects material to its analysis, the representations and warranties of AOR,
PRN and Diagnostic Acquisition, Inc. contained in the merger agreement are true
and correct, AOR, PRN and Diagnostic Acquisition, Inc. will each perform all of
the covenants and agreements to be performed by it under the merger agreement
and all conditions to the obligations of each of AOR, PRN and Diagnostic
Acquisition, Inc. to complete the merger will be satisfied without any waiver
thereof. BT Alex. Brown also assumed that all material governmental, regulatory
or other approvals or consents required in connection with the merger will be
obtained and that in connection with obtaining any necessary governmental,
regulatory or other approvals or consents, or any amendments, modifications or
waivers to any agreements, instruments or orders to which either AOR or PRN is
a party or is subject or by which it is bound, no limitations, restrictions or
conditions will be imposed or amendments, modifications, or waivers made that
would have a material adverse effect on AOR or PRN or materially reduce the
contemplated benefits of the merger to AOR. In addition, AOR informed BT Alex.
Brown, and accordingly for purposes of rendering its opinion BT Alex. Brown
assumed, that the merger will qualify for pooling of interests accounting
treatment. BT Alex. Brown is expressing no opinion as to the price at which AOR
common stock or PRN common stock will trade at any time.
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BT Alex. Brown's opinion is addressed to, and is for the use and benefit of,
the board of directors of AOR and is not a recommendation to any stockholder as
to how such stockholder should vote with respect to matters relating to the
proposed merger. BT Alex. Brown's opinion is limited to the fairness, from a
financial point of view, of the exchange ratio to the holders of AOR common
stock, and BT Alex. Brown expresses no opinion as to the merits of the
underlying decision by AOR to engage in the merger.
The following is a summary of the material analyses and factors considered
by BT Alex. Brown in connection with its opinion to the AOR board of directors
dated as of December 11, 1998:
Historical Exchange Ratio Analysis. BT Alex. Brown reviewed the historical
trading volumes and market prices for AOR common stock and PRN common stock and
the implied historical exchange ratio of AOR common stock and PRN common stock
(the closing price of PRN common stock divided by the closing price of AOR
common stock). This analysis indicated average exchange ratios for AOR common
stock and PRN common stock during the following periods were:
<TABLE>
<CAPTION>
Average
As of December 9, 1998 Exchange Ratio
---------------------- --------------
<S> <C>
December 9, 1998 Exchange Ratio........................... 0.877x
5 Trading Day Average..................................... 0.833x
20 Trading Day Average.................................... 0.845x
Average Since AOR IPO (6/12/95)........................... 0.877x
Exchange Ratio in Merger.................................. 0.940x
</TABLE>
Analysis of Selected Public Companies. BT Alex. Brown compared certain
financial and stock market information for AOR and PRN with similar information
for the following selected publicly held companies: American Dental Partners,
Inc., Monarch Dental Corporation and Orthodontic Centers of America, Inc. BT
Alex. Brown calculated
. equity market value relative to each company's estimated calendar year
1998 and 1999 earnings per share, and
. adjusted market value, meaning equity market value, plus debt, less
cash and equivalents, relative to each company's medical service
revenue as defined in the public financial statements for the latest
twelve months and earnings before interest, taxes, depreciation and
amortization ("EBITDA").
All multiples were based on closing stock prices on December 9, 1998. EPS
estimates for those companies were based on estimates as reported by the
Institutional Brokers Estimate System ("IBES," and these estimates, the "IBES
Estimates"). IBES is a data service that monitors and publishes compilations of
earnings estimates by selected research analysts regarding companies of
interest to institutional investors. Estimated 1998 and 1999 earnings per share
for AOR and PRN were based on the internal estimates of the management of AOR
and PRN. BT Alex. Brown compared the multiples for the selected companies
listed above to the multiples for AOR and to the implied multiples for PRN in
the merger.
<TABLE>
<CAPTION>
Multiples of the
Selected Companies Implied
-------------------- Multiples Multiples
Range Mean of AOR of PRN
-------------- ----- --------- ---------
<S> <C> <C> <C> <C>
Latest Twelve Months Medical Service
Revenue............................. 1.1x to 4.4x 2.3x 1.6x 1.6x
Latest Twelve Months EBITDA.......... 11.0x to 15.4x 12.9x 11.2x 10.3x
Calendar 1998 Earnings Per Share..... 19.0x to 25.5x 23.2x 22.8x 23.0x
Calendar 1999 Earnings Per Share..... 13.1x to 18.6x 16.2x 18.5x 18.7x
</TABLE>
Analysis of Selected Mergers and Acquisitions. BT Alex. Brown reviewed the
purchase prices and implied transaction multiples paid in the following five
merger and acquisition transactions (acquiror / target): Laidlaw, Inc. / EmCare
Holdings, Inc.; MedPartners, Inc. / InPhyNet Medical Management Inc.; FPA
Medical Management, Inc. / Sterling Healthcare Group, Inc.; MedPartners, Inc. /
Pacific Physician Services, Inc.; and MedPartners, Inc. / Mullikin Medical
Enterprises, L.P. BT Alex. Brown compared the multiples and premiums paid over
the target company's stock price one-month prior to the date of announcement
for those transactions to the implied multiples and premium for PRN in the
merger.
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<TABLE>
<CAPTION>
Multiples of
Selected Merger and
Acquisition
Transactions Implied
-------------------- Multiples
Range Mean of PRN
-------------- ----- ---------
<S> <C> <C> <C>
Latest Twelve Months' Medical Service Revenue... 0.8x to 1.9x 1.3x 1.6x
Latest Twelve Months' EBITDA.................... 10.8x to 17.5x 15.6x 10.3x
One-Year Forward Net Income..................... 19.7x to 28.2x 22.7x 18.6x
Premium Paid One-Month Prior.................... 16.2% to 58.2% 38.6% 17.0%
</TABLE>
Premiums Paid Analysis. BT Alex. Brown reviewed the range of premiums paid
in 129 change-of-control transactions with transaction values of $500 million
to $800 million effected since January 1, 1995. BT Alex. Brown compared the
premiums paid over the target company's stock price in the 129 change-of-
control transactions to the premium paid for PRN based on the closing stock
price of PRN common stock one-day prior, and one-month prior, to public
announcement of the merger.
<TABLE>
<CAPTION>
Premiums Paid in Selected
Transactions
------------------------------ Premium
Range Mean Median to PRN
----------------- ----- ------ -------
<S> <C> <C> <C> <C>
Target company's closing stock price
one-day prior to public announcement.. (33.8)% to 173.7% 27.8% 19.6% 7.2%
Target company's closing stock price
one-month prior to public
announcement.......................... (32.5)% to 177.4% 39.0% 32.7% 17.0%
</TABLE>
Discounted Cash Flow Analysis. BT Alex. Brown performed discounted cash flow
analyses for each of AOR and PRN to estimate the present value of the stand-
alone, unlevered, after-tax free cash flows that AOR and PRN could generate
over the periods January 1, 1999 through December 31, 2003 based on estimates
provided by the management of AOR and PRN. The stand-alone discounted cash flow
analysis was determined by:
(1) adding (x) the present value at December 31, 1998 of the projected
free cash flows generated by each company over the five-year period
from January 1, 1999 through December 31, 2003 and (y) the present
value of the estimated terminal value of each company in 2003, and
(2) subtracting the current net debt on December 31, 1998 of each company.
The range of estimated terminal values for AOR and PRN was calculated by
applying terminal value multiples ranging from 7.0x to 9.0x to the projected
2003 EBITDA of AOR and PRN, respectively. The cash flows and terminal values
were discounted to present value using discount rates ranging from 14.0% to
16.0%. This analysis yielded an implied equity reference range for AOR common
stock of $11.76 to $18.56 per share, as compared to the closing price of AOR
common stock on December 9, 1998 of $13.69. This analysis yielded an implied
equity reference range for PRN common stock of $12.89 to $18.61 per share, as
compared to the equity value implied by the exchange ratio of 0.94 of
approximately $12.87 based on the closing price of AOR common stock on December
9, 1998.
Contribution Analysis. BT Alex. Brown analyzed the relative contribution of
AOR and PRN to the net revenues, EBITDA and net income of the pro forma
combined company for the 12-month period ended September 30, 1998, and to the
estimated net income of the pro forma combined company in calendar years 1999
and 2000 based on estimates provided by the management of AOR and PRN, and
compared such contributions to the pro forma ownership of the current holders
of AOR common stock in the pro forma combined company.
<TABLE>
<CAPTION>
PRN AOR
----- -----
<S> <C> <C>
Latest Twelve Months' Net Revenues.......................... 46.3% 53.7%
Latest Twelve Months' EBITDA................................ 48.2% 51.8%
Latest Twelve Months' Net Income............................ 49.7% 50.3%
1999 Estimated Net Income................................... 49.9% 50.1%
2000 Estimated Net Income................................... 50.4% 49.6%
Ownership................................................... 50.0% 50.0%
</TABLE>
41
<PAGE>
Pro Forma Merger Analysis. BT Alex. Brown analyzed the pro forma effect of
the merger on the earnings per share of AOR in calendar years 1999 and 2000
based on estimates provided by the management of AOR and PRN, both before and
after giving effect to certain cost savings and other potential synergies
anticipated by the management of AOR and PRN to result from the merger
(excluding non-recurring costs resulting from the merger). This analysis
indicated that the merger would be accretive to AOR's earnings per share in
calendar years 1999 and 2000 assuming certain levels of cost savings and other
potential synergies were achieved. The actual operating or financial results
achieved by the pro forma combined company may vary from projected results and
variations may be material as a result of business and market risks, the timing
and amount of synergies, the cost associated with achieving such synergies and
other factors.
The summary set forth above is not a complete description of the opinion of
BT Alex. Brown to the AOR board of directors or the financial analyses
performed and factors considered by BT Alex. Brown in connection with its
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances, and, therefore, such an opinion is not readily
susceptible to summary description. BT Alex. Brown believes that its analyses
and the summary set forth above must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, or
selecting portions of the above summary, without considering all factors and
analyses, could create a misleading or incomplete view of the processes
underlying such analyses and opinion.
In performing its analyses, BT Alex. Brown made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
AOR and PRN. No company, transaction or business used in such analyses as a
comparison is identical to AOR, PRN, the pro forma combined company or the
proposed merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, such analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, businesses or transactions being analyzed. The estimates contained
in such analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
BT Alex. Brown's opinion and financial analyses were only one of many
factors considered by the AOR board of directors in its evaluation of the
proposed merger and should not be viewed as determinative of the views of the
AOR board of directors or AOR's management with respect to the exchange ratio
or the merger.
BT Alex. Brown is an internationally recognized investment banking firm and,
as a customary part of its investment banking business, is engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and valuations for
estate, corporate and other purposes. AOR selected BT Alex. Brown to serve as
its exclusive financial advisor based on BT Alex. Brown's long-standing
relationship with AOR and its reputation, expertise and experience in similar
transactions. BT Alex. Brown has in the past provided financial services to AOR
for which BT Alex. Brown has received customary compensation. BT Alex. Brown
maintains a market in AOR common stock and regularly publishes research reports
regarding the health care industry and the businesses and securities of AOR and
other publicly owned companies in the health care industry. In the ordinary
course of business, BT Alex. Brown may actively trade or hold the securities
and other instruments and obligations of AOR or PRN for its own account and the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities, instruments or obligations.
Pursuant to a letter agreement dated December 11, 1998 between AOR and BT
Alex. Brown, AOR has agreed to pay BT Alex. Brown $750,000 for rendering its
opinion, which amount will be credited against a transaction fee equal to $3.0
million payable upon consummation of the merger. In addition, AOR has agreed to
reimburse BT Alex. Brown for its reasonable out-of-pocket expenses, including
reasonable fees and
42
<PAGE>
disbursements of counsel, and to indemnify BT Alex. Brown and certain related
parties against certain liabilities, including certain liabilities under the
federal securities laws, relating to, or arising out of, its engagement.
Opinion of PRN's Financial Advisor
At the December 11, 1998 meeting of the PRN board of directors, Goldman
Sachs rendered its oral opinion, which was subsequently confirmed by the
written opinion of Goldman Sachs, that as of such date, and based upon and
subject to the various qualifications and assumptions described in such written
opinion of Goldman Sachs, the exchange ratio pursuant to the merger agreement
was fair from a financial point of view to the holders of PRN common stock.
Goldman Sachs has confirmed its December 11, 1998 opinion by delivery of its
written opinion to the PRN board of directors, dated the date of this proxy
statement and prospectus, stating that, as of the date hereof and based upon
and subject to the various qualifications and assumptions described in the
written opinion of Goldman Sachs, dated the date hereof, the exchange ratio
pursuant to the merger agreement was fair from a financial point of view to the
holders of PRN common stock.
The full text of the Goldman Sachs written opinion, dated the date hereof,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with such Goldman Sachs written opinion, is set
forth in Appendix D to this joint proxy statement and prospectus and is
incorporated herein by reference. Each of the Goldman Sachs written opinions
dated December 11, 1998 and the date hereof referred to herein was provided for
the information and assistance of the PRN board of directors in connection with
its consideration of the merger and such Goldman Sachs written opinions do not
constitute a recommendation as to how any holder of PRN common stock should
vote at the PRN special meeting. The summary of the Goldman Sachs written
opinion, dated the date hereof, set forth herein is qualified by the full text
thereof, and PRN stockholders are urged to, and should, read such Goldman Sachs
written opinion in its entirety. The Goldman Sachs written opinion dated the
date hereof is substantially similar to the December 11, 1998 Goldman Sachs
written opinion.
In connection with the Goldman Sachs written opinions dated December 11,
1998 and the date hereof, Goldman Sachs reviewed:
. the merger agreement;
. Annual Reports to Shareholders and Annual Reports on Form 10-K of PRN
for the five years ended December 31, 1998;
. Annual Reports to Stockholders and Annual Reports on Form 10-K of AOR
for the four years ended December 31, 1998;
. certain interim reports to stockholders and Quarterly Reports on Form
10-Q of PRN and AOR;
. certain other communications from PRN and AOR to their respective
stockholders; and
. certain internal financial analyses and forecasts for PRN and AOR,
prepared by their respective managements, including certain cost savings
and operating synergies projected by the managements of PRN and AOR to
result from the transaction contemplated by the merger agreement.
Goldman Sachs also held discussions with members of the senior management of
PRN and AOR regarding the strategic rationale for, and the potential benefits
of, the transaction contemplated by the merger agreement and the past and
current business operations, financial condition and future prospects of their
respective companies. In addition, Goldman Sachs reviewed the reported price
and trading activity for the PRN common stock and the AOR common stock,
compared certain financial and stock market information for PRN and AOR with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy
and completeness for purposes of rendering the Goldman Sachs written opinions
dated December 11, 1998 and the date hereof. In that regard, Goldman Sachs
assumed, with
43
<PAGE>
PRN's consent, that the internal financial forecasts prepared by the
managements of PRN and AOR, including those with respect to cost savings and
operating synergies projected to result from the merger, were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of PRN and AOR, and that such cost savings and operating synergies
will be realized in the amounts and time periods contemplated thereby. In
addition, Goldman Sachs assumed that the relative contribution of each of PRN
and AOR to the future financial performance of the respective companies on a
combined basis will be consistent with such forecasts. In addition, Goldman
Sachs did not make an independent evaluation or appraisal of the assets and
liabilities of PRN or AOR or any of their subsidiaries and Goldman Sachs was
not furnished with any such evaluation or appraisal. Goldman Sachs also assumed
with PRN's consent that the transaction contemplated by the merger agreement
will be accounted for as a pooling of interests under generally accepted
accounting principles. Goldman Sachs was not requested to solicit, and did not
solicit, interest from other parties with respect to an acquisition of or other
business combination with PRN. The Goldman Sachs written opinions dated
December 11, 1998 and the date hereof did not address the relative merits of
the transaction contemplated pursuant to the merger agreement, as compared to
any alternative business transactions that might be available to PRN. In
connection with the Goldman Sachs written opinion dated the date hereof,
Goldman Sachs reviewed the analyses used to render its December 11, 1998
written opinion to the PRN board of directors by performing procedures to
update certain of such analyses and by reviewing the assumptions upon which
such analyses were based and the factors considered in connection therewith. In
addition, in connection with rendering the Goldman Sachs written opinion, dated
the date hereof, Goldman Sachs reviewed this proxy statement and prospectus.
Goldman Sachs' advisory services and the Goldman Sachs written opinions
referred to in this joint proxy statement and prospectus were provided for the
information and assistance of the PRN board of directors in connection with its
consideration of the transaction contemplated by the merger agreement and the
Goldman Sachs written opinions do not constitute a recommendation as to how any
holder of PRN common stock should vote with respect to the transaction.
The following is a summary of certain of the financial analyses presented to
the PRN board of directors by Goldman Sachs in connection with providing the
Goldman Sachs written opinion dated December 11, 1998, and does not purport to
be a complete description of the analyses performed by Goldman Sachs. Goldman
Sachs used substantially the same types of financial analyses in preparing its
written opinion dated as of the date of this proxy statement and prospectus as
it used in providing its written opinion dated December 11, 1998.
(a) Review of Proposed Transaction. Goldman Sachs reviewed the terms of
the proposed merger, including the form of consideration offered, the
exchange ratio, the closing price of AOR common stock as of December 9,
1998, and the resulting notional price per share of PRN common stock
pursuant to the proposed merger. The notional price per share of PRN common
stock in the merger was $12.87, which was determined by multiplying the
exchange ratio by the $13.688 closing price of AOR common stock on December
9, 1998. This notional price therefore is dependent on the closing price of
the AOR common stock at a specific time. The notional price reflects:
. a 7% premium over the closing price of PRN common stock on December 9,
1998;
. a 14% discount from the one-year high of PRN common stock during the
period from December 9, 1997 to December 9, 1998 (the "One Year
Period"); and
. a 72% premium over the one year low of PRN common stock during the One
Year Period.
In addition to reviewing the notional price resulting from the merger,
the analyses described indicated values resulting from the merger,
expressed as levered multiples of estimates of PRN revenue, EBITDA and
earnings before interest and taxes ("EBIT") for the year ending December
31, 1998, and as unlevered multiples of estimates of PRN net income for
1998 and for the year ending December 31, 1999. In performing these
analyses, Goldman Sachs used estimates prepared by the management of PRN.
Under these analyses, the levered consideration (the equity consideration
plus net debt of PRN) and unlevered
44
<PAGE>
consideration using the closing price of AOR common stock on December 9,
1998 reflected the following multiples:
<TABLE>
<CAPTION>
1998
--------------------
Revenue EBITDA EBIT
------- ------ -----
<S> <C> <C> <C>
Levered Multiple.................................... 1.9x 9.8x 14.5x
</TABLE>
<TABLE>
<CAPTION>
1998 1999
Net Income Net Income
---------- ----------
<S> <C> <C>
Unlevered Multiple................................. 23.2x 8.5x
</TABLE>
(b) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including market
capitalization, book capitalization, sales, EBITDA, EBIT and net income)
for PRN and AOR and the relative contribution of PRN and AOR to the
combined company, based on IBES Estimates and on estimates prepared by PRN
management and on a range of estimates provided by management of AOR. This
analysis indicated the following contribution by PRN to the combined
company:
<TABLE>
<CAPTION>
PRN's
Contributions to
Combined Company
----------------
<S> <C>
Equity Market Capitalization............................ 48.4%
Levered Market Capitalization(1)........................ 44.7%
Gross Debt.............................................. 24.6%
Common Equity Based on Book Value....................... 53.2%
Sales(2)
1998.................................................. 46.6%
1999.................................................. 44.5%-45.4%
EBITDA(2)
1998.................................................. 47.7%
1999.................................................. 45.6%-46.5%
EBIT(2)
1998.................................................. 46.0%
1999.................................................. 43.8%-45.7%
Net Income(2)
1998.................................................. 49.9%
1999.................................................. 48.6%-49.9%
2000.................................................. 50.4%
Net Income(3)
1998.................................................. 49.9%
1999.................................................. 48.8%
2000.................................................. 48.0%
</TABLE>
- --------
(1) Levered market capitalization equals equity market capitalization plus net
debt
(2) Based on estimates prepared by management of AOR and PRN
(3) Based on IBES Estimates
Goldman Sachs compared the foregoing data to the implied ownership by PRN
stockholders of 50% of the common equity, on a fully diluted basis, of the
combined company based on the exchange ratio of 0.94.
(c) Analysis of Accretion/Dilution Effect. Goldman Sachs prepared an
analysis of the accretion/dilution effect of the merger. Using estimates
prepared by management of AOR and PRN and IBES Estimates for 1998, 1999 and
2000, Goldman Sachs compared the earnings per share of the common stock of
the combined company on a pro forma basis to the earnings per share of PRN
and AOR, each, on a stand-alone basis.
Goldman Sachs performed an analysis of the accretion/dilution effect to
the merger on AOR. This analysis assumed an AOR effective tax rate of 38%.
The analyses indicated that the proposed transaction, assuming no
synergies, would be as follows:
. dilutive to AOR for 1998 and 1999 on a pro forma earnings per share
basis using estimates prepared by management of AOR and PRN or IBES
Estimates;
45
<PAGE>
. accretive to AOR for 2000 based on a pro forma earnings per share basis
using estimates prepared by management of AOR and PRN; and
. dilutive to AOR for 2000 on a pro forma earnings per share basis using
IBES Estimates.
The pre-tax synergies needed for the transaction to be non-dilutive were as
follows:
. $0.3 million in 1998 and from $0.4 million to $3.8 million in 1999
based on estimates prepared by management of AOR and PRN; and
. $0.3 million in 1998, $3.0 million in 1999 and $6.3 million in 2000
based on the IBES Estimates.
Goldman Sachs also prepared an analysis of the accretion/dilution effect
of the merger on PRN. Goldman Sachs calculated the amount of
accretion/dilution by comparing the earnings per share of PRN on a stand-
alone basis to PRN's pro rata share of the pro forma earnings per share.
This pro rata share is determined by multiplying the pro forma earnings per
share by the exchange ratio. This analysis indicated that the proposed
transaction would be as follows:
. accretive to PRN for 1998 and 1999 on a pro forma earnings per share
basis using estimates prepared by management of AOR and PRN or IBES
Estimates;
. dilutive to PRN for 2000 based on a pro forma earnings per share basis
using estimates prepared by management of AOR and PRN; and
. accretive to PRN for 2000 based on a pro forma earnings per share basis
using IBES Estimates.
(d) Implied Pro Rata Stock Price. Goldman Sachs performed a calculation
of PRN's implied pro rata stock price of the combined company (the "Implied
Pro Rata Stock Price") using the PRN Pro Rata EPS and based upon the Pro
Forma EPS using IBES Estimates and assuming multiples of price/earnings
("P/E") ranging from 20.0x to 23.0x for Year 1998, 16.0x to 19.0x for Year
1999 and 13.0x to 16.0x for Year 2000. Depending upon the multiple
selected, and assuming that the common stock of the combined company
actually trades at such multiples (which assumption is subject to numerous
uncertainties), the Implied Pro Rata Stock Price would range as follows:
. from $11.24 to $12.93 per share in 1998;
. from $11.00 to $13.06 per share in 1999; and
. from $11.13 to $13.70 per share in 2000.
Goldman Sachs compared the foregoing data to the closing price as of
December 9, 1998 for PRN common stock of $12.00 per share.
(e) Exchange Ratio History Analysis. Goldman Sachs calculated the
average of the quotients of the closing prices per share of PRN common
stock and AOR common stock for the two-year, one-year, 90-day, 60-day and
30-day periods ended December 9, 1998.
The following table presents such average exchange ratios for the
periods covered compared to the exchange ratio of the merger.
<TABLE>
<CAPTION>
Average
Exchange
Periods Ratio
------- --------
<S> <C>
Two Years........................................................ 0.76
One Year......................................................... 0.83
90 Days.......................................................... 0.89
60 Days.......................................................... 0.90
30 Days.......................................................... 0.85
Proposed Exchange Ratio.......................................... 0.94
</TABLE>
(f) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for PRN common stock and AOR common
stock, the relationship between movements of PRN common stock and AOR
common stock and movements in the S&P 500 Index, a Primary/Multispecialty
Composite Index containing the primary/multispecialty companies listed in
paragraph (g) below and a Specialty Composite Index containing the
specialty companies listed in paragraph (g) below. This analysis
46
<PAGE>
consisted of a historical analysis of daily closing prices and trading
volume of each of PRN common stock and AOR common stock over the One-Year
Period, a six months period from June 9, 1998 to December 9, 1998 (the "Six
Months Period"), and of weekly closing prices, with respect to PRN, for the
period since the week of PRN's initial public offering from November 23,
1994 to December 4, 1998, and with respect to AOR, for the period since the
week of AOR's initial public offering from June 13, 1995 to December 4,
1998. Goldman Sachs also reviewed the daily closing prices of PRN common
stock and compared them with the daily closing prices of AOR common stock,
the S&P 500 Index, the Specialty Composite Index and the
Primary/Multispecialty Composite Index, over the One-Year Period. In
addition, Goldman Sachs reviewed and analyzed the monthly forward P/E
history (based on median IBES Estimates) over a period from January 31,
1995 to December 9, 1998 of the PRN common stock and over a period from
July 31, 1995 to December 9, 1998 of the AOR common stock. Goldman Sachs
also reviewed and analyzed the earnings per share estimates of each of PRN
and AOR provided by research analysts' reports and compared these earnings
per share estimates with the closing prices of PRN common stock and AOR
common stock, respectively, on a monthly basis over a period from January
1, 1995 to December 9, 1998 for PRN and over a period from July 1, 1995 to
December 9, 1998 for AOR. Goldman Sachs further reviewed the volume of
shares of each of PRN common stock and AOR common stock traded at a range
of prices, the weighted average price of each of PRN common stock and AOR
common stock and the total number of shares of PRN common stock and AOR
common stock traded as a percentage of outstanding shares of PRN common
stock and AOR common stock, respectively, over the One-Year Period, the Six
Months Period and, with respect to PRN, for the period since the week of
its initial public offering from November 23, 1994 to December 9, 1998 and,
with respect to AOR, for the period since the week of its initial public
offering from June 13, 1995 to December 9, 1998.
(g) Comparable Public Company Analysis. Goldman Sachs reviewed and
compared certain financial information relating to PRN and AOR to
corresponding financial information, ratios and public market multiples for
two groups of selected publicly traded companies in the physician practice
management industry considered by Goldman Sachs to be reasonably comparable
to PRN and AOR for purposes of this analysis. These comparable companies
consisted of the following specialty companies:
. Concentra Managed Care Inc.,
. Orthodontic Centers of America Inc.,
. Pediatrix Medical Group Inc.,
. Physicians Resource Group Inc. (which company was excluded from the
calculation of the high, low, mean and medium multiples and ratios for
the Specialty Companies), and
. Specialty Care Network Inc.
and the following primary/multispecialty companies:
. MedPartners Inc.,
. PhyCor Inc.,
. PhyMatrix Corp., and
. Sheridan Healthcare Inc.
Goldman Sachs calculated and compared various financial multiples and
ratios for each of PRN and AOR with those of the comparable companies
consisting of the specialty companies and the primary/multispecialty
companies listed above using the respective closing price per common share
on December 9, 1998. The multiples and ratios for each of PRN and AOR and
the comparable companies were based on publicly available information as of
December 9, 1998 and on IBES Estimates.
With respect to the comparable companies as described above, PRN and
AOR, Goldman Sachs considered, among other multiples and ratios:
. the December 9, 1998 closing price as a percentage of the 52-week high;
47
<PAGE>
. levered market capitalization as a multiple of sales for the latest
twelve months, as a multiple of annualized sales based on latest quarter
data ("Annualized Sales"), as a multiple of EBITDA for the latest twelve
months, and as a multiple of EBIT for the latest twelve months;
. the P/E multiple for calendar years 1998 and 1999 based on IBES
Estimates;
. the IBES estimate of growth rate of earnings (the "IBES Growth Rate");
. the ratio of P/E to the IBES Growth Rate for calendar years 1998 and
1999; and
. the market price to book value multiple.
The following table presents the ranges, the mean and the median figures for
the specialty companies and the primary/multispecialty companies listed above.
These data are compared to similar data for AOR and PRN and to the implied
transaction multiples for PRN.
<TABLE>
<CAPTION>
Primary/Multispecialty Implied
Specialty Companies Companies Transaction
------------------------ ------------------------ Multiple
Range Mean Median Range Mean Median AOR PRN for PRN
----------- ----- ------ ----------- ----- ------ ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 9, 1998 Closing
Price as a Percentage
of 52 Week High........ 13.9%-95.2% 61.4% 73.5% 15.9%-39.9% 23.1% 18.3% 72% 81.4% --
Levered Market
Capitalization as a
Multiple of:
Latest Twelve Months
Sales*................ 1.2x-5.5x 2.8x 1.9x 0.4x-1.0x 0.6x 0.6x 2.1x 1.8x 2.0x
Annualized Sales....... 1.1x-4.8x 2.5x 1.8x 0.4x-1.0x 0.6x 0.5x 1.8x 1.7x 1.8x
Latest Twelve Months
EBITDA................ 4.8x-15.3x 10.6x 10.2x 3.7x-50.2x 16.8x 6.7x 11.2x 9.3x 9.9x
Latest Twelve Months
EBIT.................. 6.8x-17.9x 13.3x 14.3x 5.2x-18.7x 10.6x 7.8x 15.1x 13.6x 14.6x
P/E Multiple:
1998................... 6.4x-28.7x 19.4x 22.1x 5.9x-44.4x 16.5x 7.9x 22.8x 21.4x 23.0x
1999................... 6.4x-22.6x 15.7x 18.1x 5.4x-8.9x 7.2x 7.3x 18.3x 17.9x 19.2x
IBES Growth Rate........ 20.0%-35.0% 27.5% 27.5% 15.0%-25.0% 20.6% 21.3% 30% 25.0% --
Ratio of P/E to the IBES
Growth Rate:
1998................... 0.3x-1.0x 0.7x 0.6x 0.3x-3.0x 1.0x 0.3x 0.8x 0.9x 0.9x
1999................... 0.3x-0.8x 0.7x 0.6x 0.2x-0.6x 0.4x 0.3x 0.6x 0.7x 0.8x
Market Price to Book
Value.................. 0.5x-4.2x 2.5x 2.3x 0.3x-14.6x 4.1x 0.7x 2.4x 2.0x 2.1x
</TABLE>
- --------
*As defined in the public financial statements
(h) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to certain selected transactions of selected publicly
traded companies in the physician practice management industry announced
since November 1996. Goldman Sachs noted that no transaction reviewed was
identical to the merger and that, accordingly, an assessment of the results
of the following analysis necessarily involves considerations and judgments
concerning differences in financial and operating characteristics of PRN
and other factors that would affect the acquisition value of the companies
to which it is being compared. This analysis indicated that, for the
selected transactions with various data points being unavailable, levered
consideration as a multiple of trailing sales, trailing EBITDA and trailing
EBIT, and the ratio of equity value to trailing net income were as follows:
<TABLE>
<CAPTION>
Selected Transactions Multiple Ratio of Equity
of Trailing: Value to Trailing
------------------------------- -----------------
Sales EBITDA EBIT Net Income
--------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Range................... 0.9x-3.1x 7.2x-17.4x 8.4x-22.9x 22.1x-32.8x
Mean.................... 1.7x 13.8x 17.3x 27.1x
Median.................. 1.3x 16.6x 21.1x 26.3x
</TABLE>
48
<PAGE>
This analysis also indicated that for the selected transactions the
premium based on stock prices of the companies involved one day prior to
announcement of the acquisition (as provided by Securities Data
Corporation) and four weeks prior to announcement of the acquisition (as
provided by Securities Data Corporation) was as follows:
<TABLE>
<CAPTION>
Premium
-------------------------
One Day Four Weeks
Prior to Prior to
Announcement Announcement
------------ ------------
<S> <C> <C>
Range........................................... (0.8%)-37.4% (8.2%)-59.4%
Mean............................................ 12.6% 20.6%
Median.......................................... 10.9% 23.7%
</TABLE>
Goldman Sachs compared the foregoing data to certain multiples relating
to the consideration to be received by the holders of PRN common stock as
set forth under the caption "General Description of the Merger" above.
(i) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis for PRN using management projections from PRN for the
years 1999 to 2003. Goldman Sachs calculated a net present value of free
cash flows for PRN for the years 1999 through 2003 using discount rates
ranging from 12% to 16%. Goldman Sachs also calculated PRN's terminal
values in the year 2003 based on multiples ranging from 6.0x EBITDA to
10.0x EBITDA. These terminal values were then discounted to present value
using discount rates from 12.0% to 16.0%. This analysis resulted in
estimated equity values per share for PRN that ranged from $10.64 to
$23.18. Goldman Sachs also performed a sensitivity analysis to consider the
impact of variances in revenue growth and/or EBITDA margin on estimated
equity values per share for PRN. Assuming a 14.0% discount rate and an exit
multiple of 8.0x EBITDA, Goldman Sachs performed the analysis assuming
revenue growth ranging from 20.0% to 24.6% and a variance in EBITDA margin
ranging from (2.0)% to 2.0%. This sensitivity analysis resulted in
estimated equity values per share for PRN that ranged from $14.58 to
$20.75.
Goldman Sachs also performed a discounted cash flow analysis for AOR
using management projections from AOR for the years 1999 to 2003. Goldman
Sachs calculated a net present value of free cash flows for AOR for the
years 1999 through 2003 using discount rates ranging from 12% to 16%.
Goldman Sachs also calculated AOR's terminal values in the year 2003 based
on multiples ranging from 6.0x EBITDA to 10.0x EBITDA. These terminal
values were then discounted to present value using discount rates from
12.0% to 16.0%. This analysis resulted in estimated equity values per share
for AOR that ranged from $9.83 to $25.26. Goldman Sachs also performed a
sensitivity analysis to consider the impact of variances in revenue growth
and/or EBITDA margin on estimated equity values per share for AOR. Assuming
a 14.0% discount rate and an exit multiple of 8.0x EBITDA, Goldman Sachs
performed the analysis assuming revenue growth ranging from 25.0% to 29.0%
and a variance in EBITDA margin ranging from (2.0)% to 2.0%. This
sensitivity analysis resulted in estimated equity values per share for AOR
that ranged from $12.17 to $23.18.
Goldman Sachs performed an implied exchange ratio analysis based upon
relative discounted cash flow valuations of PRN and AOR utilizing discount
rates ranging from 12.0% to 16.0% and exit EBITDA multiples ranging from
6.0x to 10.0x. Based upon a comparison of low to high estimated equity
values per share for each of PRN and AOR, the implied exchange ratios
ranged from 0.92 to 1.08.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying its opinion. In arriving at its fairness determination, Goldman
Sachs considered the results of all these analyses. No company or transaction
used in the above analyses as a comparison is directly comparable to PRN or AOR
or the contemplated transaction. The analyses were prepared solely for the
purpose of Goldman Sachs' providing the
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Goldman Sachs opinions rendered on December 11, 1998 and the date of this proxy
statement and prospectus to the PRN board of directors as to the fairness from
a financial point of view of the exchange ratio and do not purport to be
appraisals or necessarily reflect the prices at which business or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. Because these analyses
are inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of the parties or their respective advisors, none of
PRN, AOR, Goldman Sachs or any other person assumes responsibility if future
results are materially different from those forecast. As described above, the
Goldman Sachs opinions dated December 11, 1998 and dated the date hereof to the
PRN board of directors were one of many factors taken into consideration by the
PRN board of directors in making its determination to approve the merger
agreement. The foregoing summary does not purport to be a complete description
of the analysis performed by Goldman Sachs and presented to the PRN board of
directors on December 11, 1998.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. The PRN board of
directors selected Goldman Sachs as its financial advisor because it is an
internationally recognized investment banking firm that has substantial
experience in transactions similar to the merger and because of Goldman Sachs'
familiarity with PRN. Goldman Sachs is familiar with PRN, having acted as its
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the merger agreement.
Goldman Sachs provides a full range of financial, advisory and security
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of PRN or AOR for its account and for the accounts of customers.
Pursuant to a letter agreement dated July 8, 1997 (the "Goldman Engagement
Letter"), PRN engaged Goldman Sachs as its financial advisor and to render an
opinion with respect to the fairness of the financial consideration to be
received by holders of PRN common stock. Pursuant to the terms of the Goldman
Engagement Letter, PRN has agreed to pay Goldman Sachs a fee of $500,000 in
connection with the delivery of the Goldman Sachs opinion and has agreed to pay
an additional fee of (i) 0.60% of the aggregate consideration paid in the
merger to the extent such aggregate consideration, when divided by the number
of outstanding shares of PRN common stock on a fully-diluted basis on the date
ending five days prior to the consummation of the transactions (the "Fully
Diluted PRN Shares"), is less than or equal to 0.85 of the price of a share of
AOR common stock (the "Base Ratio"), plus (ii) an additional 0.70% of (a) the
amount by which the aggregate consideration paid, when divided by the number of
Fully Diluted PRN Shares, exceeds the Base Ratio, times (b) the number of the
Fully Diluted PRN Shares. Based on an AOR common stock price of $8.44 (the
closing price for AOR common stock on May 7, 1999) per share and approximately
54.1 million shares of PRN common stock outstanding on a fully-diluted basis,
the aggregate fee payable to Goldman Sachs is approximately $3.1 million, of
which $500,000 has already been paid. The aggregate fee payable to Goldman
Sachs varies based upon the applicable trading price of AOR common stock. PRN
has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorney's fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
Some Officers, Directors and Significant Stockholders of PRN Have Interests in
the Merger Other Than as Stockholders
In considering the recommendation of PRN's board of directors with respect
to the merger agreement and the transactions contemplated thereby, stockholders
of PRN should be aware that certain members of management of PRN and PRN's
board of directors have interests in the merger that may be substantial and are
in addition to the interests of stockholders of PRN generally. PRN's board of
directors was aware of these
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interests and considered them, among other factors, in approving the merger.
These interests are summarized below.
Certain executive officers of PRN will receive severance payments as a
result of the merger. John T. Casey, George P. McGinn and Michael N. Murdock,
who are all executive officers of PRN, will receive severance payments under
their existing employment agreements with PRN as a result of the merger and
their subsequent termination of employment. Their employment agreements
currently give each of them the right to terminate his employment within 180
days of the occurrence of a change in control and obligate PRN to pay the
employee his then base salary for three years following the change in control
as long as the employee complies with certain noncompetition, confidential
information and non-solicitation restrictions for these years. The employment
agreements were amended on January 15, 1999 to increase PRN's obligation to pay
each employee his base salary from two to three years and to require each to
comply with noncompetition, confidential information and non-solicitation
restrictions for three years. The completion of the merger will constitute a
change in control as defined in Messrs. Casey, McGinn and Murdock's employment
agreements, and, after a post-merger transition period during which they will
continue to be employed by the combined company, Messrs. Casey, McGinn and
Murdock will terminate their employment with PRN and will receive severance
payments of $1,275,000, $750,000 and $825,000, respectively, under their
employment agreements. In addition, PRN has agreed to pay an aggregate of up to
$2.0 million to Messrs. Casey, McGinn and Murdock as bonuses for their services
prior to the merger and during the transition period.
O. Edwin French and Joseph S. Bailes, M.D. will be employed by the combined
company. O. Edwin French and Joseph S. Bailes, M.D., who are currently
executive officers of PRN, will serve as Chief Operating Officer and Executive
Vice President, respectively, of the combined company after the merger. The
terms of their employment have not been determined. Each of Mr. French's and
Dr. Bailes' current employment agreements with PRN provide that following a
change of control each, respectively, is entitled to a severance payment of two
years' base salary if his employment is terminated. Because Mr. French and Dr.
Bailes intend to be employed by the combined company following the merger, it
is not currently anticipated that Mr. French or Dr. Bailes will receive any
severance payment under their employment agreements. If the employment of Mr.
French or Dr. Bailes were terminated within 180 days after the merger or
because of a diminution in duties, however, they would be entitled to the
severance payments described above.
Texas Oncology, P.A. is a significant stockholder of PRN and party to a
service agreement with PRN. Texas Oncology, P.A., which as of April 30, 1999
owned of record an aggregate of 8,778,823 shares of PRN common stock, or
approximately 16.9% of the outstanding PRN common stock, will be managed by the
combined company after the merger. Texas Oncology is currently managed by PRN.
All of Texas Oncology's PRN stock will be treated in the same manner as shares
of PRN common stock held by the other stockholders. On December 13, 1998, Texas
Oncology, P.A. and Physician Reliance, LP, a subsidiary of PRN, entered into a
Second Amended and Restated Service Agreement, to be effective as of November
1, 1998. See "Certain Relationships and Related Transactions--Certain
Relationships and Related Transactions with PRN."
PRN options will become fully vested. At the time the merger becomes
effective, each option to purchase PRN common stock will be assumed by AOR and
will be converted into an option to acquire, on the same terms and conditions
(except for accelerated vesting of certain PRN options as a result of the
merger) as were applicable under the assumed PRN option, a number of shares of
AOR common stock equal to the product of the exchange ratio multiplied by the
number of shares of PRN common stock subject to such PRN option, at a price per
share equal to the aggregate exercise price for the shares of PRN common stock
subject to such PRN option divided by the exchange ratio. In addition, the
vesting of the PRN options will be accelerated in accordance with the
provisions of the PRN Stock Option Plan for all employees of PRN. As of May 10,
1999, the executive officers and non-employee directors of PRN held PRN options
to purchase an aggregate of 1,958,488 and 248,376 shares, respectively, of PRN
common stock. See "The Agreement and Plan of Merger
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and Terms of the Merger-- Manner and Basis for Converting Shares" and
"--Treatment of PRN Stock Options and Other Rights to Receive PRN Common Stock."
After the merger, some members of PRN's board of directors will become
directors of the combined company and will receive options to purchase an
aggregate of 117,000 shares of AOR common stock. The merger agreement provides
that, when the merger is effective, Nancy G. Brinker, John T. Casey, J. Taylor
Crandall, Robert W. Daly, Stephen E. Jones, M.D., Boone Powell, Jr., and Burton
S. Schwartz, M.D. will become members of the board of directors of the combined
company. Upon becoming directors of the combined company, assuming the
amendments to AOR's 1993 Non-Employee Director Stock Option Plan are approved,
each of them will receive an option to purchase 15,000 shares of AOR common
stock at the then fair market value for AOR common stock. Each director who is
appointed to a committee of the board of directors will also receive an option
to purchase 2,000 shares of AOR common stock at the then fair market value for
AOR common stock for each committee to which such director is appointed. The
merger agreement provides that Mr. Powell will be appointed to three
committees, Mr. Casey will be appointed to two committees and Ms. Brinker will
be appointed to one committee. See "--Management and Operations of the Combined
Company Following the Merger."
The combined company will indemnify and provide insurance to directors and
officers of PRN. Under the terms of the merger agreement, AOR and PRN have
agreed to indemnify and hold harmless each present and former director and
officer of PRN and its subsidiaries as provided in their respective charters
and bylaws and as otherwise provided in any arrangement or agreement in effect
on the date of the merger agreement, for acts or omissions occurring at or
prior to the time the merger becomes effective for a period of six years after
such time and until any claim made within such six-year period has been
resolved. AOR and PRN have also agreed to use reasonable efforts to maintain,
subject to certain conditions, for a period of six years after the merger
becomes effective, the current officers' and directors' liability insurance
maintained by PRN insuring against claims relating to events that occurred
prior to the merger's effectiveness.
Material Federal Income Tax Consequences of the Merger to PRN Stockholders
The following discussion summarizes the material federal income tax
consequences of the merger to holders of PRN common stock under the Internal
Revenue Code, but does not deal with all tax consequences of the merger that
may be relevant to PRN stockholders in light of their particular circumstances,
such as the tax consequences to PRN stockholders who do not hold their PRN
common stock as a capital asset or who are foreign persons, insurance
companies, tax-exempt organizations, financial institutions, securities
dealers, broker-dealers or persons who acquired their shares in compensatory
transactions. Furthermore, no foreign, state or local tax considerations are
addressed herein.
This summary should not be regarded as a substitute for an analysis of the
tax consequences of the merger to the individual situation of a PRN
stockholder. PRN urges its stockholders to consult a tax advisor regarding the
particular federal, state, local, foreign and other tax consequences of the
merger to such stockholder's own particular situation.
It is a condition precedent to PRN's obligation to consummate the merger
that PRN shall have received from its counsel, Bass, Berry & Sims PLC, an
opinion substantially to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The form of this opinion is attached as Exhibit 8 to the registration
statement of which this joint proxy statement and prospectus forms a part. The
opinion is subject to certain assumptions as noted therein and is based on
certain representations of AOR, Diagnostic Acquisition, Inc., PRN and
affiliates of PRN. The opinion is based upon the Internal Revenue Code,
applicable treasury regulations, judicial authority and administrative rulings
and practice, all as of the date of the opinion. There can be no assurance that
future legislative, judicial or administrative changes or interpretations will
not adversely affect the accuracy of the statements and conclusions set forth
therein. Any such changes or interpretations could be applied retroactively and
could affect the tax consequences of the merger. The opinion will not be
binding upon the Internal Revenue Service and the Internal Revenue Service
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will not be precluded from adopting a contrary position. The requirement that
PRN receive this opinion is waivable at the option of PRN. PRN does not
currently intend to waive such condition. In the event that such condition is
waived, AOR and PRN will recirculate a revised joint proxy statement and
prospectus that discloses the waiver of this condition and contains all related
material disclosure, including risks to investors. In such event, AOR and PRN
will resolicit proxies from their stockholders.
The merger will qualify as a reorganization under Section 368(a) of the
Internal Revenue Code, and the following federal income tax consequences will
occur:
(a) no gain or loss will be recognized by AOR, Diagnostic Acquisition,
Inc. or PRN as a result of the merger;
(b) no gain or loss will be recognized by holders of PRN common stock
upon the exchange of their PRN common stock solely for shares of AOR common
stock (except with respect to cash received in lieu of fractional shares of
AOR common stock);
(c) the aggregate tax basis of the shares of AOR common stock received
by a PRN stockholder in the merger, including any fractional share deemed
received, will be the same as the aggregate tax basis of PRN common stock
surrendered in exchange therefor;
(d) the holding period of the shares of AOR common stock received by a
PRN stockholder in the merger, including any fractional share deemed
received, will include the holding period of the shares of PRN common stock
surrendered in exchange therefor, provided that such shares of PRN common
stock are held as capital assets when the merger becomes effective; and
(e) a cash payment in lieu of a fractional share will be treated as if a
fractional share of AOR common stock had been received in the merger and
then redeemed by AOR. Such redemption should qualify as a distribution in
full payment in exchange for the fractional share rather than as a
distribution of a dividend. Accordingly, a PRN stockholder receiving cash
in lieu of a fractional share will recognize gain or loss upon such payment
in an amount equal to the difference, if any, between such stockholder's
basis in the fractional share described in paragraph (c) above and the
amount of cash received. Such gain or loss will be a capital gain or loss
if such stockholder's PRN common stock is held as a capital asset when the
merger becomes effective.
PRN urges each stockholder to consult a tax advisor as to the particular
consequences of the merger that may apply to such stockholder, including the
application of state, local, foreign and other federal tax laws.
We Anticipate That the Merger Will Be Treated as a Pooling of Interests for
Accounting Purposes
It is anticipated that AOR will account for the merger using the pooling of
interests method of accounting. The pooling of interests method of accounting
assumes that the combining companies have been merged from inception, and the
historical financial statements for periods prior to consummation of the merger
are restated as though the companies had been combined from inception.
Two of the conditions to the closing of the merger are as follows: (a)
PricewaterhouseCoopers LLP, independent accountants for AOR, shall have
delivered a letter, dated the closing date, addressed to AOR, and (b) Arthur
Andersen LLP, independent accountants for PRN, shall have delivered a letter,
dated the closing date, addressed to PRN in form and substance reasonably
satisfactory to PRN and AOR, to the effect that the merger will qualify for
pooling of interests accounting treatment if completed in accordance with the
merger agreement.
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Government and Regulatory Approvals Are Required to Complete the Merger
Transactions such as the merger are reviewed by the Antitrust Division of
the Department of Justice and the Federal Trade Commission to determine whether
they comply with applicable antitrust laws. Under the provisions of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, the merger may not be
consummated until such time as the specified waiting period requirements of the
Hart-Scott-Rodino Act have been satisfied. AOR and PRN filed notification
reports with the Antitrust Division and FTC under the Hart-Scott-Rodino Act,
and early termination of the waiting period was granted on March 8, 1999.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the merger. At any time before or
after the merger, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the merger or seeking divestiture of
substantial assets of AOR or PRN or their subsidiaries. Private parties and
state attorneys general may also bring an action under the antitrust laws under
certain circumstances. If the merger is challenged on antitrust grounds, we
cannot be certain what the result will be.
Before we can complete the merger, we must obtain all governmental waivers,
consents, orders and approvals required to complete the merger and related
transactions, except where the failure to obtain the same would not be
reasonably likely, individually or in the aggregate, to have a material adverse
effect on AOR or PRN. Those waivers, consents, orders and approvals must remain
in effect at the time the merger becomes effective.
Resales of AOR Common Stock Received in the Merger by Affiliates of PRN Will Be
Subject to Restrictions
The shares of AOR common stock received by PRN stockholders in connection
with the merger have been registered under the Securities Act of 1933, as
amended (the "Securities Act") and, except as set forth below, may be traded
without restriction. The shares of AOR common stock issued in the merger and
received by persons who are deemed to be "affiliates," as that term is defined
in Rule 144 under the Securities Act, of PRN prior to the merger may be resold
by them only in transactions permitted by the resale provisions of Rule 145
under the Securities Act or, in the case of persons who become affiliates of
AOR, Rule 144 under the Securities Act, or as otherwise permitted under the
Securities Act. Each of the executive officers, directors and each other person
who is an "affiliate" of PRN or AOR, as the case may be, has delivered to AOR
and/or PRN a written agreement to the effect that such persons will not offer
to sell, sell or otherwise dispose of any shares of AOR common stock issued in
the merger except, in each case, pursuant to an effective registration
statement or in compliance with Rule 145 or in a transaction which, in the
opinion of legal counsel satisfactory to AOR, is exempt from the registration
requirements of the Securities Act and, in any case, until after the results
covering 30 days of post-merger combined operations of AOR and PRN have been
filed with the SEC, sent to stockholders of AOR or otherwise publicly issued.
Under SEC guidelines interpreting generally accepted accounting principles,
with certain limited exceptions, the sale of AOR common stock or PRN common
stock by an affiliate of either AOR or PRN generally within 30 days prior to
the time the merger becomes effective or thereafter prior to the publication of
results that include a minimum of at least 30 days of combined operations of
AOR and PRN after the time the merger becomes effective could preclude pooling
of interests accounting treatment for the merger.
Management and Operations of the Combined Company Following the Merger
If the merger is completed, management of the combined company will be as
follows:
. R. Dale Ross, the current Chairman of the Board and Chief Executive
Officer of AOR, will continue in those positions.
. Lloyd K. Everson, M.D., the current President of AOR, will continue in
that position.
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. O. Edwin French, the current Chief Operating Officer of PRN, will serve
as Chief Operating Officer of the combined company.
. L. Fred Pounds, the current Vice President of Finance, Treasurer and
Chief Financial Officer of AOR, will continue in those positions.
. Joseph S. Bailes, M.D., the current Executive Vice President and National
Medical Director of PRN, will serve as Executive Vice President of the
combined company.
The merger agreement provides that following the merger the board of
directors of the combined company will be comprised of 14 persons, seven of
whom currently serve on AOR's board of directors and seven of whom currently
serve on PRN's board of directors. The 14 directors are expected to be: Nancy
G. Brinker, Russell S. Carson, John T. Casey, J. Taylor Crandall, James E.
Dalton, Robert W. Daly, Stephen E. Jones, M.D., Stanley A. Marks, M.D., Richard
B. Mayor, Robert A. Ortenzio, Boone Powell, Jr., Edward E. Rogoff, M.D., R.
Dale Ross, and Burton S. Schwartz, M.D. Each such person has agreed to serve as
a director.
After the merger is completed, the executive offices of the combined company
will be located at 16825 Northchase Drive, Suite 1300, Houston, Texas 77060,
the current location of AOR's executive offices.
Amendment of PRN Rights Agreement
PRN has amended its shareholder rights agreement to provide that neither the
approval, execution or delivery of the merger agreement, nor the completion of
the merger and related transaction in accordance with the terms of the merger
agreement, will cause the PRN Rights (as defined in this joint proxy statement
and prospectus) issued and outstanding to become exercisable pursuant to the
PRN Rights Agreement. See "Comparative Rights of Stockholders of AOR and PRN--
Rights Plans."
Stock Exchange Listing; Delisting and Deregistration of PRN Common Stock
It is a condition to the merger that any shares of AOR common stock issuable
in the merger be authorized for listing on The Nasdaq Stock Market, subject to
official notice of issuance. If the merger is completed, PRN common stock will
cease to be listed on The Nasdaq Stock Market. In addition, PRN will deregister
PRN common stock under the Securities Exchange Act of 1934, as amended, and,
accordingly, will no longer be required to file periodic reports pursuant to
the Securities Exchange Act of 1934.
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THE AGREEMENT AND PLAN OF MERGER AND TERMS OF THE MERGER
The following summary of the terms of the merger agreement is qualified in
its entirety by reference to the merger agreement, a copy of which is attached
to this joint proxy statement and prospectus as Appendix A.
Effective Time of the Merger
The merger will become effective at a date and time to be specified in the
articles of merger, which will be filed with the Secretary of State of the
State of Texas. The articles of merger will be filed prior to or simultaneously
with, and be effective at, the closing of the transactions contemplated by the
merger agreement.
AOR and PRN anticipate, assuming approval is obtained from the stockholders,
that the transaction will be closed promptly after the respective stockholder
meetings.
Manner and Basis for Converting Shares
When the merger becomes effective, each outstanding share of PRN common
stock will be converted into the right to receive, without interest, 0.94
shares of AOR common stock. The stock transfer books of PRN will be closed upon
effectiveness of the merger.
SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY STOCKHOLDERS OF
PRN PRIOR TO APPROVAL OF THE MERGER AND THE RECEIPT OF A LETTER OF TRANSMITTAL.
After the closing of the merger, an exchange agent will mail PRN
stockholders a letter of transmittal and instructions for exchanging PRN stock
certificates for shares of AOR common stock. PRN stockholders will also receive
cash in lieu of any fractional shares. Upon surrender of a stock certificate to
the exchange agent, together with the executed letter of transmittal, PRN
stockholders will be entitled to receive shares of AOR common stock and any
cash payable in lieu of fractional shares. The surrendered PRN stock
certificates will promptly be canceled.
The certificates representing shares of AOR common stock to be issued in the
exchange will be held by American Stock Transfer & Trust Company, the exchange
agent for the merger.
All shares of AOR common stock and cash in lieu of fractional shares issued
in exchange for certificates of PRN common stock will be considered to have
been exchanged in full payment for the PRN common stock. After the closing of
the merger, PRN's transfer agent will not register transfers of shares that
were outstanding prior to the closing. If shares of PRN common stock are
presented to PRN or AOR after the merger for any reason, the certificates will
be canceled and exchanged for shares of AOR common stock.
AOR will not issue fractional shares of common stock in the merger. Instead
of fractional shares, AOR will pay cash without interest to holders of PRN
common stock who would otherwise have received a fraction of a share of AOR
common stock. The average closing sale price of AOR common stock, as quoted on
The Nasdaq Stock Market, for the three trading days immediately prior to the
date the merger closes will determine the amount of cash paid by AOR.
AOR will not pay any dividends it declared or any cash payable in lieu of
fractional shares to a PRN stockholder until the stockholder has exchanged the
PRN share certificates for shares of AOR. Following surrender of PRN stock
certificates by a PRN stockholder, AOR will pay to such stockholder, without
interest, the amount of any dividends declared by AOR to which such stockholder
is entitled and any cash payable in lieu of fractional shares of AOR common
stock as described above.
Treatment of PRN Stock Options and Other Rights to Receive PRN Common Stock
At the time the merger becomes effective, each outstanding option to
purchase PRN common stock issued by PRN will automatically become an option to
acquire shares of AOR common stock. The terms and conditions of the replacement
AOR option will be the same as the pre-existing PRN option it replaces. The
option will entitle the holder to the number of shares of AOR common stock the
holder would have been
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entitled to receive in the merger if the holder had exercised the option in
full immediately prior to the merger. The exercise price per share for each
replacement option will be equal to the exercise price for shares of PRN common
stock under the option immediately prior to the merger divided by the exchange
ratio of 0.94. The resulting price will then be rounded down to the nearest
whole cent. As of April 30, 1999, options to acquire 3,467,900 shares of PRN
common stock were outstanding.
AOR will reserve for issuance a sufficient number of shares of AOR common
stock for delivery under the PRN options as converted. As soon as practicable
and in no event more than twenty business days after the merger, AOR will file
a registration statement on Form S-8 with respect to the shares of AOR common
stock subject to the converted options and will use its best efforts to
maintain the effectiveness of that registration statement for so long as the
options remain outstanding.
In addition, PRN will cause each person that currently has a right to
receive PRN common stock at a future date to consent to receive AOR common
stock at that future date. Each such person will have the right to receive the
number of shares of AOR common stock the person would have received had the
person received the shares of PRN common stock immediately prior to the merger.
Conditions to the Merger
The respective obligations of AOR and PRN to effect the merger are subject
to the fulfillment at or prior to the time the merger becomes effective of the
following conditions:
. the merger agreement and the resulting transactions need to be approved
and adopted by the stockholders of PRN;
. the issuance of shares of AOR common stock issuable in the merger needs
to be approved by AOR stockholders and such shares and those to be
reserved for issuance upon exercise of stock options and other rights to
receive AOR common stock need to be authorized for listing on The Nasdaq
Stock Market upon official notice of issuance;
. the AOR stockholders need to approve AOR's amended and restated
certificate of incorporation and the amendments to AOR's 1993 Affiliate
Stock Option Plan and 1993 Non-Employee Director Stock Option Plan being
proposed at the AOR annual meeting;
. AOR's registration statement relating to shares to be issued in the
merger needs to become effective in accordance with the provisions of
the Securities Act, and cannot be the subject of any stop order or
proceedings seeking a stop order suspending such effectiveness;
. no proceeding relating to this joint proxy statement and prospectus can
have begun or been overtly threatened by the SEC;
. no court or governmental entity can have enacted, promulgated or
enforced a statute, rule, regulation, executive order, decree,
injunction or restraining order that remains in effect and that
prohibits or imposes material conditions to completing the merger and
related transactions (although each party agrees to use reasonable
efforts to have any such injunction, order or decree lifted);
. AOR and PRN need to have made all filings with governmental entities
required by laws, rules and regulations and, to the extent necessary,
such governmental entities must have approved the merger and related
transactions, except where a failure to obtain approval would not have a
material adverse effect on the combined company or the completion of the
merger;
. the waiting period applicable to completing the merger under the Hart-
Scott-Rodino Act needs to have expired or been terminated (the waiting
period was terminated on March 8, 1999);
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<PAGE>
. the listing on The Nasdaq Stock Market of the shares to be issued in the
merger needs to have been approved subject to official notice of
issuance; and
. PricewaterhouseCoopers LLP, independent accountants for AOR, and Arthur
Andersen LLP, independent accountants for PRN, need to have delivered
letters, dated the date the merger becomes effective, addressed to AOR
and PRN, respectively, acceptable to PRN and AOR, to the effect that the
merger will qualify for pooling of interests accounting treatment if
completed in accordance with the merger agreement.
The obligation of PRN to effect the merger is further subject to the
fulfillment at or prior to the time the merger becomes effective of the
following additional conditions, unless waived by PRN:
. AOR needs to have performed in all material respects its agreements in
the merger agreement required to be performed on or prior to the time
the merger becomes effective;
. AOR's representations and warranties in the merger agreement need to be
true as of the date made and also, except to the extent that the
representations and warranties speak as of an earlier date, as of the
date the merger becomes effective, except for such failures to be true
that would not reasonably be expected to have a material adverse effect
on the business operations, properties, assets, condition or results of
operations of AOR and its subsidiaries considered as a whole;
. AOR needs to have obtained all necessary consents, assignments, waivers
or authorizations, other than the governmental authorizations described
above and except those that, if not obtained, would not have a material
adverse effect on the combined company or the transactions contemplated
by the merger agreement;
. PRN needs to have received a comfort letter from Arthur Andersen LLP,
its independent accountants, with respect to the registration statement;
. PRN needs to have received an opinion from Bass, Berry & Sims PLC dated
as of the date the merger becomes effective, reasonably acceptable to
PRN, substantially to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code;
. AOR's directors who are not continuing need to have resigned; and
. Goldman Sachs needs to have delivered a fairness opinion dated no later
than three days prior to the date this joint proxy statement and
prospectus is mailed to stockholders of PRN.
The obligation of AOR to effect the merger is further subject to the
fulfillment at or prior to the time the merger becomes effective of the
following additional conditions, unless waived by AOR:
. PRN needs to have performed in all material respects its agreements in
the merger agreement required to be performed on or prior to the time
the merger becomes effective;
. PRN's representations and warranties in the merger agreement shall be
true as of the date made and also, except to the extent that such
representations and warranties speak as of an earlier date, as of the
time the merger becomes effective, except for such failures to perform
or to be true that would not reasonably be expected to have a material
adverse effect on the business, properties, assets, condition or results
of operations of PRN and its subsidiaries considered as a whole;
. PRN needs to have obtained all necessary consents, assignments, waivers
or authorizations, other than the governmental authorizations described
above, and except those that, if not obtained, would not have a material
adverse effect on the combined company or the transactions contemplated
by the merger agreement;
. AOR needs to have received a comfort letter from PricewaterhouseCoopers
LLP, its independent accountants, with respect to the registration
statement;
. PRN's directors need to have resigned;
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<PAGE>
. certain of PRN's executive officers need to have resigned and be subject
to non-competition covenants reasonably acceptable to AOR; and
. BT Alex. Brown needs to have delivered a fairness opinion dated no later
than three days prior to the date this joint proxy statement and
prospectus is mailed to stockholders of AOR.
Cooperation
In the merger agreement, each of the parties has agreed to take all action
and to do all things necessary, proper or advisable under applicable laws and
regulations to complete and make effective the transactions contemplated by the
merger agreement.
Representations and Warranties of AOR and PRN
In the merger agreement, AOR and PRN have made various representations and
warranties relating to, among other things, their respective businesses and
financial condition, compliance with laws, the accuracy of their various
filings with the Securities and Exchange Commission, the satisfaction of
certain legal requirements for the merger and the absence of undisclosed
liabilities or material litigation matters. The representations and warranties
of each of the parties to the merger agreement will expire upon completion of
the merger or other termination of the merger agreement.
Conduct of the Business of AOR and PRN Prior to the Merger
In the merger agreement, AOR and PRN have agreed that, after the date of the
merger agreement and prior to the time the merger becomes effective or earlier
termination of the merger agreement, they will conduct their respective
businesses in the ordinary and usual course of business and consistent with
past practice. This conduct is subject to exceptions included in the merger
agreement and may be waived by AOR or PRN. AOR and PRN also agreed that neither
they nor their subsidiaries will:
. amend or propose to amend their respective charters or bylaws;
. alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any AOR or PRN
subsidiary;
. split, combine or reclassify their outstanding capital stock;
. declare, set aside or pay any dividend or distribution payable in cash,
stock or otherwise except to themselves or their respective
subsidiaries;
. issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or any options, warrants or rights
of any kind to acquire any shares of their capital stock of any class or
any debt or equity securities convertible into or exchangeable for such
capital stock, with some exceptions;
. 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 that are material, other than any
such acquisition transaction or affiliation transaction in which the
aggregate value of the consideration paid is less than $50 million so
long as the aggregate value of all acquisition and affiliation
transactions entered into by either of them does not exceed $150
million;
. sell, lease, pledge, dispose of or encumber any assets, that are
material, individually or in the aggregate, to it, other than in the
ordinary course of business and consistent with past practice;
. incur, guarantee or become contingently liable with respect to any
material indebtedness for borrowed money, issue any debt securities or
otherwise incur any material obligation or liability other than in
59
<PAGE>
the ordinary course of business and consistent with past practice or in
connection with acquisition or affiliation transactions;
. redeem, purchase, acquire or offer to purchase or acquire any shares of
its capital stock or long-term debt other than as required by governing
instruments of such stock or debt, or agree to do so;
. 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 in the
ordinary course of business consistent with past practice, and except
for agreements to pay bonuses up to a total of $1,500,000 for PRN or
$1,000,000 for AOR, to key employees for the purpose of retaining such
employees through the time the merger becomes effective;
. adopt, enter into or amend, 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;
. make any commitment or enter into any material contract or agreement
providing for expenditures by it in excess of $200,000, except in the
ordinary course of business consistent with past practice;
. except as 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;
. revalue any of its assets, including writing down the value of its
inventory or writing off notes or accounts receivable, other than in the
ordinary course of business;
. make any material tax election or settle or compromise any material
income tax liability;
. 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;
. pay, discharge or satisfy any claim, liability or obligation 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, its financial statements or the notes thereto
and incurred in the ordinary course of business consistent with past
practice;
. except as otherwise permitted by the merger agreement, waive, redeem,
amend or allow to lapse any material term or condition of its
shareholder rights agreement or any confidentiality or "standstill"
agreement to which it is a party;
. 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 Internal Revenue Code; or
. 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
in the merger agreement becoming untrue or in any of the conditions to
the merger not being satisfied or adversely affect the ability of AOR to
account for the merger as a pooling of interests.
AOR and PRN Have Agreed not to Solicit Acquisition Transactions
From the date of the merger agreement until the merger is effective, AOR
and PRN has each agreed that it will not, directly or indirectly:
. solicit or encourage any inquiries or proposals that are or could lead
to a proposal for a merger, business combination or similar transaction
involving the party or any of its subsidiaries, other than the merger;
. engage in negotiations or discussions concerning a proposal for a merger
or similar transaction;
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<PAGE>
. provide public information to any person or entity relating to a
proposal for a merger or similar transaction; or
. agree to or recommend any proposal for a merger or similar transaction.
However, either AOR or PRN may (a) furnish non-public information to or
enter into discussions or negotiations with a person or entity that has made an
unsolicited proposal for a merger or similar transaction; or (b) modify or
withdraw its recommendation regarding the merger or recommend an unsolicited
bona fide written acquisition proposal to the shareholders of such party, if:
.its board of directors believes in good faith after consultation with its
legal and financial advisors:
(1) that the proposal is reasonably capable of being completed on the
terms proposed;
(2) that the proposal would result in a transaction more favorable to
its stockholders than the transaction contemplated by the merger
agreement; and
(3) that the action is required for the board to comply with its
fiduciary duties to stockholders under applicable law; or
. its board determines such action is necessary to comply with Rule 14e-2
under the Securities Exchange Act of 1934 with regard to a proposal for
a merger or similar transaction.
The merger agreement requires that AOR or PRN immediately notify the other
after receipt of any such proposal or indication of interest of any person with
respect to an acquisition proposal or request for non-public information or
access to the properties, books or records relating to either of them or their
subsidiaries or affiliated physician groups. Such notice must indicate the
identity of the offeror. The merger agreement also requires that AOR or PRN
keep the other party advised of the status and principal terms of any such
proposal, with certain restrictions.
The Merger Agreement May Be Terminated Under Certain Conditions
The merger agreement may be terminated at any time prior to the time the
merger becomes effective, whether before or after approval by the stockholders
of AOR or PRN, as follows:
. by mutual consent of the boards of directors of AOR and PRN;
. by AOR or PRN, if the merger has not 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 AOR and PRN
are continuing to seek to obtain such approval; however, neither party
may terminate the merger agreement for this reason if its failure to
fulfill any obligation under the merger agreement has been the cause of,
or resulted in, the failure of the merger to occur on or before such
date;
. by AOR or PRN, if any governmental entity, the consent of which is a
condition to the merger, has determined not to grant its consent, and
all appeals of such determination have been taken and have been
unsuccessful;
. by AOR or PRN, if any court has issued an order, judgment or decree
other than a temporary restraining order restraining, enjoining or
otherwise prohibiting the merger, which is final and nonappealable;
. by AOR or PRN, if, at the meeting of PRN stockholders, the PRN
stockholders do not approve the merger agreement;
. by AOR or PRN, if, at the meeting of AOR stockholders, the AOR
stockholders do not approve the matters set forth in this joint proxy
statement and prospectus that are conditions to the merger;
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<PAGE>
. by AOR or PRN, if a breach by the other of any representation or
warranty in the merger agreement that would have a material adverse
effect on the breaching company or a material breach of a covenant in
the merger agreement by the other remains uncured for ten business days
after notice; nevertheless, neither AOR nor PRN may terminate the merger
agreement for this reason if it is in a material breach of one of its
representations, warranties or covenants in the merger agreement;
. by AOR or PRN, if the board of directors of the other withdraws or
adversely modifies its approval or recommendation of the merger and
related transactions or recommends another acquisition or merger
transaction;
. by AOR or PRN, if except in connection with the transactions
contemplated by the merger agreement, the other company or its board of
directors waives, amends, redeems or allows to lapse any material term
or condition of its shareholder rights agreement, or its shareholder
rights agreement or the rights thereunder are declared in any material
respect void, illegal or unenforceable; or
. by AOR or PRN, if its board of directors withdraws or adversely modifies
its approval or recommendation of the merger to permit a definitive
agreement providing for the transaction or transactions contemplated by
an alternative acquisition proposal.
The Merger Agreement May Be Amended
Amendments to the merger agreement must be in writing and must be approved
by the parties' respective boards of directors or duly authorized committees of
the boards. The merger agreement may be amended any time before the merger
becomes effective, whether before or after approval by the stockholders of PRN
or AOR. Some amendments, however, may by law require further stockholder
approval.
Termination Fees May Be Payable by AOR or PRN in Certain Circumstances
The merger agreement generally requires AOR or PRN to pay to the other a
termination fee of:
. $20 million if the merger agreement is terminated so that such company
may pursue another acquisition transaction or if one of them terminates
the merger agreement because the board of directors of the other
withdraws its recommendation in favor of the merger or because the other
has waived, amended, redeemed or allowed to lapse any material term or
condition of its shareholder rights agreement;
. $15 million if the merger agreement is terminated because of such
company's failure to obtain required stockholder approvals or its breach
of a covenant in the merger agreement; and
. $12 million if the merger agreement is terminated because of such
company's breach of a representation or warranty in the merger
agreement, which breach would have a material adverse effect.
AOR and PRN Have Agreed on Which Will Pay Certain Expenses
All costs and expenses incurred in connection with the merger and the
related transactions will be paid by the party incurring such expenses, except
that expenses incurred to prepare, print and file this joint proxy statement
and prospectus and to obtain approval under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 will be shared equally by AOR and PRN.
AOR Has Agreed to Indemnify Officers and Directors of PRN
AOR will indemnify present and former directors and officers of PRN in a
manner consistent with the indemnification provisions of the articles of
incorporation and bylaws of PRN and any other agreement with such individuals
in respect of indemnification, in each case with respect to acts or omissions
occurring at or prior to the time the merger becomes effective, for a period of
six years from the date of the merger.
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The merger agreement further requires that for a period of six years after
the time the merger becomes effective, AOR must use its reasonable efforts to
cause to be maintained in effect the current or similar policies of directors'
and officers' liability insurance maintained by PRN with respect to matters
arising on or before the date the merger became effective. If any claim is
asserted against an indemnified party during the six-year period, the insurance
must be continued until the claim is finally resolved. The indemnification
provisions of the merger agreement survive the consummation of the merger and
expressly are intended to benefit each of the indemnified parties.
AOR and PRN Have Entered Into Stock Option Agreements
The following description of the AOR stock option agreement and the PRN
stock option agreement does not purport to be complete and is qualified in its
entirety by reference to the option agreements, copies of which are attached to
this joint prospectus and proxy statement as Appendix B.
As a condition to each party's willingness to enter into the merger
agreement, AOR and PRN each entered into the option agreements, whereby each
party granted to the other the irrevocable right to purchase approximately
10.1% of its outstanding shares of common stock at an exercise price equal to
the last sale price of such common stock on The Nasdaq Stock Market on December
11, 1998, equaling $13.00 per share for AOR common stock and $11.50 per share
for PRN common stock. As of December 11, 1998, 10.1% of the AOR common stock
was equal to 3,450,000 shares and 10.1% of the PRN common stock was 5,203,630
shares.
AOR or PRN may exercise the option granted to it only if a triggering event
has occurred prior to an option termination event and notice of exercise is
sent within 14 months of the triggering event. An option termination event
occurs either:
. immediately prior to the effective time of the merger;
. when the merger agreement is terminated (other than immediately after or
during the continuance of a triggering event); or
. on 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.
A triggering event occurs if the merger agreement becomes terminable
because:
. the board of directors of the party who granted the option withdraws or
adversely modifies its approval or recommendation of the merger and
related transactions or recommends another acquisition or merger
transaction; or
. the party who granted the option or its board of directors waives,
amends, redeems or allows to lapse any material term or condition of its
shareholder rights agreement or its shareholder rights agreement or the
rights thereunder are declared in any material respect void, illegal or
unenforceable except in connection with the transaction contemplated by
the merger agreement.
If the option becomes exercisable as outlined above and the party that
granted the option executes a definitive agreement for another acquisition or
completes another acquisition transaction, a repurchase event will be deemed to
have occurred. Within ten business days following the occurrence of a
repurchase event, the party who granted the option must deliver an offer to the
other party to repurchase the option from other party at a price equal to the
amount by which the acquisition proposal price exceeds the option price,
multiplied by the number of shares for which the option may then be exercised,
and deliver to each owner of option shares an offer to repurchase such owner's
option shares, excluding such option shares as have been previously publicly
distributed, at a price equal to the acquisition proposal price multiplied by
the number of option shares then held by such owner. The acquisition proposal
price is the price per share of common stock paid pursuant to the acquisition
proposal or, in the event of a sale of assets of the 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
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in connection with the acquisition proposal is other than in cash, the value of
such consideration shall be determined by a nationally recognized investment
banking firm selected by the grantee. If the party who granted the option fails
to make the offer to repurchase, the other party and the owners of shares
nevertheless have the right to require the issuer to repurchase options and
option shares on the terms set forth above.
If a triggering event occurs prior to an option termination event, the party
holding the option may require the party who granted the option to file a shelf
registration statement covering shares issued or issuable pursuant to the
option and may demand a second such registration within 14 months after the
first request if reasonably necessary to effect sales or other dispositions of
such shares.
The parties entered into the option agreements in an effort to increase the
likelihood that the merger will be completed. Therefore, certain aspects of the
option agreements may have the effect of discouraging persons who now, or prior
to the time the merger is completed, may be interested in acquiring all of or a
significant interest in AOR or PRN or proposing such an acquisition. Exercise
of an option by either company in the event such option became exercisable
would provide the grantee with the right to vote approximately ten percent of
the issuer's common stock now outstanding, but would have no economic benefit
unless another proposal involved consideration in excess of the applicable
exercise price. In addition, the grant of the option may be deemed to cause
either company as issuer to be ineligible to participate in a pooling of
interests transaction with another party if the merger does not occur.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the merger of AOR and PRN under the pooling of interests method of
accounting. These pro forma financial statements are presented for illustrative
purposes only, and therefore are not necessarily indicative of the operating
results and financial position that might have been achieved had the merger
occurred as of an earlier date, nor are they necessarily indicative of
operating results and financial position that may occur in the future.
A pro forma combined balance sheet is provided as of December 31, 1998,
giving effect to the merger as though it had been consummated on that date. Pro
forma combined statements of operations are provided for the years ended
December 31, 1996, 1997, and 1998, giving effect to the merger as though it had
occurred at the beginning of the earliest period presented.
The following unaudited pro forma combined financial statements have been
prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of AOR and PRN,
incorporated by reference into this joint proxy statement and prospectus (see
"Where You Can Find More Information").
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ ------------------------
ASSETS AOR PRN Adjustments Combined
------ -------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents............ $ 10,618 $ 3,073 $ 13,691
Accounts receivable............. 133,465 109,925 243,390
Prepaids and other current
assets......................... 14,006 16,964 30,970
Inventory....................... 14,682 14,682
Due from affiliated physician
groups......................... 13,527 8,827 22,354
-------- -------- ------- ----------
Total current assets.......... 171,616 153,471 325,087
Property, plant and equipment,
net.............................. 53,490 167,454 220,944
Management services agreements,
net.............................. 338,673 128,541 467,214
Other noncurrent assets........... 4,321 19,033 $ 2,300 (a) 24,954
(1,700)(a)
1,000 (b)
-------- -------- ------- ----------
Total assets.................. $568,100 $468,499 $ 1,600 $1,038,199
======== ======== ======= ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Current maturities of long term
indebtedness................... $ 14,708 $ 7,718 $ 22,426
Accounts payable................ 48,207 32,522 80,729
Due to affiliated physician
groups......................... 1,799 4,807 6,606
Accrued compensation costs...... 4,381 5,737 10,118
Accrued interest payable........ 4,408 4,408
Income taxes payable............ 6,435 $(2,736)(c) 3,699
Other accrued liabilities....... 9,662 5,457 16,000 (b) 31,119
-------- -------- ------- ----------
Total current liabilities..... 89,600 56,241 13,264 159,105
Deferred income taxes............. 10,973 13,266 24,239
Other liabilities................. 282 282
Long-term indebtedness............ 173,140 61,334 2,300 (a) 236,774
-------- -------- ------- ----------
Total liabilities............. 273,713 131,123 15,564 420,400
Minority interest................. 1,965 1,965
Stockholders' equity:
Common stock.................... 328 515 (31)(d) 812
Additional paid-in capital...... 148,425 256,293 31 (d) 404,749
Common stock to be issued....... 70,643 18,499 89,142
Treasury stock.................. (3,696) (3,696)
Retained earnings............... 78,687 60,104 (1,700)(a) 124,827
(15,000)(b)
2,736 (c)
-------- -------- ------- ----------
Total stockholders' equity.... 294,387 335,411 (13,964) 615,834
-------- -------- ------- ----------
Total liabilities and
stockholders' equity......... $568,100 $468,499 $ 1,600 $1,038,199
======== ======== ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ -----------------------
AOR PRN Adjustments Combined
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenue.......................... $455,952 $397,989 $(17,345)(e) $836,596
Operating expenses:
Pharmaceutical and supplies.... 207,930 149,989 (153)(f) 357,766
Practice compensation and
benefits...................... 86,136 86,162 (g) 172,298
Salaries and benefits.......... 92,619 (92,619)(g)
Other practice costs........... 51,769 55,902 (h) 107,671
General and administrative..... 26,201 61,416 153 (f) 38,325
6,457 (g)
(55,902)(h)
Provision for uncollectible
accounts...................... 17,345 (17,345)(e)
Depreciation and amortization.. 23,287 25,176 334 (i) 48,797
-------- -------- -------- --------
395,323 346,545 (17,011) 724,857
-------- -------- -------- --------
Income from operations........... 60,629 51,444 (334) 111,739
Other income (expense):
Interest income................ 222 222
Interest expense............... (12,096) (4,034) (460)(j) (16,590)
-------- -------- -------- --------
Income before income taxes....... 48,755 47,410 (794) 95,371
Income taxes..................... 18,527 17,657 (302) 35,882
-------- -------- -------- --------
Net income................... $ 30,228 $ 29,753 $ (492) $ 59,489
======== ======== ======== ========
Net income per share--basic...... $ 0.63 $ 0.57 $ 0.61
-------- -------- --------
Shares used in per share
calculations--basic............. 48,293 52,504 (3,150)(k) 97,647
-------- -------- -------- --------
Net income per share--diluted.... $ 0.61 $ 0.56 $ 0.59
-------- -------- --------
Shares used in per share
calculations--diluted........... 49,845 53,351 (3,201)(l) 99,995
-------- -------- -------- --------
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ -----------------------
AOR PRN Adjustments Combined
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenue.......................... $321,840 $317,435 $(13,862)(e) $625,413
Operating expenses:
Pharmaceuticals and supplies... 144,890 105,758 (223)(f) 250,425
Practice compensation and
benefits...................... 61,296 81,914 (g) 143,210
Salaries and benefits.......... 86,862 (86,862)(g)
Other practice costs........... 35,090 52,142 (h) 87,232
General and administrative..... 21,174 57,606 223 (f) 31,809
4,948 (g)
(52,142)(h)
Provision for uncollectible
accounts...................... 51,703 (13,862)(e) 37,841
Depreciation and amortization.. 14,177 21,017 333 (i) 35,527
-------- -------- -------- --------
276,627 322,946 (13,529) 586,044
-------- -------- -------- --------
Income (loss) from operations.... 45,213 (5,511) (333) 39,369
Other income (expense):
Interest income................ 348 348
Interest expense............... (8,715) (4,107) (460)(j) (13,282)
-------- -------- -------- --------
Income (loss) before income
taxes........................... 36,846 (9,618) (793) 26,435
Income taxes..................... 13,979 (2,386) (301) 11,292
-------- -------- -------- --------
Net income (loss)............ $ 22,867 $ (7,232) $ (492) $ 15,143
======== ======== ======== ========
Net income (loss) per share--ba-
sic............................. $ 0.50 $ (0.14) $ 0.16
-------- -------- --------
Shares used in per share
calculations--basic............. 45,571 50,635 (3,038)(k) 93,168
-------- -------- -------- --------
Net income (loss) per share--
diluted......................... $ 0.48 $ (0.14) $ 0.16
-------- -------- --------
Shares used in per share
calculations--diluted........... 48,100 50,635 (1,537)(l) 97,198
-------- -------- -------- --------
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ -----------------------
AOR PRN Adjustments Combined
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenue.......................... $205,460 $238,319 $(11,030)(e) $432,749
Operating expenses:
Pharmaceutical and supplies.... 85,210 70,822 (289)(f) 155,743
Practice compensation and
benefits...................... 41,350 62,824 (g) 104,174
Salaries and benefits.......... 66,879 (66,879)(g)
Other practice costs........... 23,495 33,919 (h) 57,414
General and administrative..... 14,095 37,988 289 (f) 22,508
4,055 (g)
(33,919)(h)
Provision for uncollectible
accounts...................... 11,030 (11,030)(e)
Depreciation and amortization.. 9,343 15,894 333 (i) 25,570
-------- -------- -------- --------
173,493 202,613 (10,697) 365,409
-------- -------- -------- --------
Income from operations........... 31,967 35,706 (333) 67,340
Other income (expense):
Interest income................ 1,062 1,062
Interest expense............... (4,307) (1,939) (460)(j) (6,706)
-------- -------- -------- --------
Income before income taxes....... 28,722 33,767 (793) 61,696
Income taxes..................... 11,072 13,271 (301) 24,042
-------- -------- -------- --------
Net income................... $ 17,650 $ 20,496 $ (492) $ 37,654
======== ======== ======== ========
Net income per share--basic...... $ 0.40 $ 0.44 $ 0.43
-------- -------- --------
Shares used in per share
calculations--basic............. 44,228 46,643 (2,799)(k) 88,072
-------- -------- -------- --------
Net income per share--diluted.... $ 0.37 $ 0.43 $ 0.41
-------- -------- --------
Shares used in per share
calculations--diluted........... 47,549 47,433 (2,846)(l) 92,136
-------- -------- -------- --------
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements are presented for
illustrative purposes only, giving effect to the merger of AOR and PRN using
the pooling of interests method of accounting. In accordance with SEC reporting
rules, the pro forma combined statements of operations, and the historical
statements from which they are derived, present only income from continuing
operations and, therefore, do not include discontinued operations,
extraordinary items and the cumulative effects of accounting changes.
Because the transaction has not been completed, costs of the merger can only
be estimated at this time. The pro forma combined statements of operations
exclude: (1) the positive effects of potential cost savings that may be
achieved upon combining the resources of the companies; and (2) estimated
transaction costs of approximately $20 million, including investment banking,
legal and accounting fees, and contractual termination benefits. Additionally,
AOR and PRN are developing a plan to integrate the operations of AOR and PRN
after the merger. In connection with that plan, AOR anticipates that certain
non-recurring charges will be incurred in connection with such integration. AOR
cannot factually identify the timing, nature and amount of such charges as of
the date of this joint proxy statement and prospectus. However, any such charge
could affect AOR's results of operations in the period in which such charges
are recorded. The unaudited pro forma combined consolidated financial
statements do not reflect any such integration charges.
The pro forma combined balance sheet as of December 31, 1998 includes, in
accordance with SEC reporting rules, the impact of all transactions, whether of
a recurring or nonrecurring nature, that can be reasonably estimated and should
be reflected as of that date as if the transaction had been consummated. These
transaction costs are principally reflected as an increase in accrued
liabilities and a reduction in retained earnings.
AOR and PRN employ accounting policies that are in accordance with generally
accepted accounting principles in the United States. Certain accounting
policies of PRN have been conformed to the policies of AOR in the pro forma
statements. The preparation of historical consolidated financial statements in
conformity with generally accepted accounting principles requires AOR and PRN
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Ultimate results could differ from
those estimates.
2. PRO FORMA ADJUSTMENTS
Intercompany Transactions--There were no intercompany transactions that
required elimination from the pro forma combined operating results or balance
sheet.
(a) Other noncurrent assets and long-term indebtedness--Other noncurrent
assets and long-term indebtedness have been adjusted to reflect the
write-off of $1.7 million in existing bank financing costs and the
incurrence of $2.3 million in financing fees related to the
establishment of a new credit facility. The new credit facility will be
executed with a new group of lenders. The new facility will change the
terms of AOR's existing facility by adding a subfacility maturing in
364 days, extending the term of the facility by two years and
increasing the interest rate payable under the facility from an
interest rate equal to the London Interbank Offered Rate (LIBOR) plus
0.55% to a rate equal to LIBOR plus 1.23%.
(b) Other accrued liabilities and other noncurrent assets--The pro forma
adjustment reflects the expected incurrence of approximately $15.0 and
$1.0 million for one-time, estimated transaction costs directly related
to the merger which will be expensed and capitalized, respectively, at
the time the merger is completed as required under the pooling of
interests accounting method. These charges represent direct merger
costs, which include financial advisor fees of approximately $6.5
million, outside legal and accounting fees and filing costs of
approximately $3.0 million, contractual termination expenses of
approximately $4.6 million and various other costs and filing fees of
$0.9 million. In addition, the pro forma adjustment reflects the
capitalization of $1.0 million in non-competition cost.
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(c) Income tax payable and deferred income tax--The pro forma adjustment
reflects the tax impact of pro forma adjustments (a) and (b).
(d) Stockholders' Equity--Common stock accounts are adjusted for the
assumed issuance of approximately 48.5 million shares of AOR common
stock in exchange for approximately 51.6 million shares of PRN common
stock outstanding as of December 31, 1998, utilizing the exchange ratio
of 0.94. Additional paid-in capital is adjusted for the effects of the
issuance of shares of AOR common stock having a par value of $0.01 per
share in exchange for PRN common stock having a par value of $0.01 per
share. The number of shares of AOR common stock to be issued upon
consummation of the merger will be based upon the actual number of
shares of PRN common stock outstanding at that time and the exchange
ratio of 0.94.
(e) Revenue and Provision for uncollectible accounts--PRN's presentation of
Provision for uncollectible accounts has been reclassified to conform
to AOR's presentation as an offset to Revenue in accordance with full
recourse provisions against affiliated practices. No reclassification
has been made for $37.8 million in receivables directly written off by
PRN in the year ending December 31, 1997 for which recourse actions
were not taken.
(f) Pharmaceuticals and supplies and General and administrative expenses--
PRN supplies expense related to corporate activities included in PRN's
Pharmaceuticals and supplies expense has been reclassified as General
and administrative expense.
(g) Salaries and benefits, Practice compensation and benefits and General
and administrative expense--PRN's Salaries and benefits expense
incurred and allocated to the affiliated practice level for purposes of
computing management fees has been reclassified as Practice
compensation and benefits. Salaries and benefits have also been
reclassified as General and administrative expense for those costs not
allocated to affiliated practice level to conform with AOR's manner of
presentation.
(h) Other practice costs and General and administrative expense--PRN's
general and administrative costs incurred at or allocated to the
affiliated practice level for purposes of computing management fees
have been reclassified from General and administrative expense to Other
practice costs to conform to AOR's manner of presentation.
(i) Depreciation and amortization expense--Amortization of $1.0 million
non-competition agreement on a straight line basis over 3 years.
(j) Interest expense--Amortization of $2.3 million deferred bank financing
fees on a straight line basis over 5 years.
(k) Shares used in per share calculations--Pro forma combined weighted-
average common shares outstanding for all periods presented are based
upon AOR's and PRN's combined historical weighted-average shares
outstanding in accordance with Statement of Financial Accounting
Standards No. 128, after adjustment of PRN's historical number of
shares by the exchange ratio of 0.94.
(l) Shares used in per share calculations--Pro forma combined weighted-
average common shares outstanding used in the fully diluted calculation
have been adjusted to assume a dilutive effect related to stock options
and convertible debt, in accordance with Statement of Financial
Accounting Standards No. 128, after adjustment of PRN's historical data
calculated at the exchange ratio of 0.94.
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COMPARATIVE RIGHTS OF STOCKHOLDERS OF AOR AND PRN
General
As a result of the merger, holders of PRN common stock will become
stockholders of AOR, and the rights of former PRN stockholders will thereafter
be governed by
. AOR's amended and restated certificate of incorporation which is proposed
to be adopted at the AOR annual meeting and is attached as Appendix E to
this joint proxy statement and prospectus,
. the amended and restated bylaws of AOR and
. the Delaware General Corporation Law.
The rights of holders of PRN common stock are currently governed by
.the PRN articles of incorporation,
.the PRN bylaws and
.the Texas Business Corporation Act.
The following summary, which is not a complete description of the
differences between the rights of the stockholders of AOR and the rights of the
stockholders of PRN, describes certain differences between AOR's amended and
restated certificate of incorporation and AOR's amended and restated bylaws, on
the one hand, and the PRN's articles of incorporation and bylaws, on the other.
This summary is qualified in its entirety by reference to the full text of each
of these documents and the corporate law of Delaware and Texas. For more
information on how such documents may be obtained, see "Where You Can Find More
Information."
Staggered Board of Directors
Delaware corporate law permits, but does not require, a staggered board of
directors. The PRN board of directors is not staggered; all of its directors
serve one-year terms and are subject to election at each annual meeting of the
stockholders of PRN. The AOR board of directors currently is not staggered.
After the merger is effective, the AOR board of directors will be staggered.
That is, it will be divided into three classes, with each class elected for a
term of three years (other than the initial Class I and Class II directors who
will serve for one-year and two-year terms, respectively). Each class of
directors will consist, as nearly as possible, of one-third of the total number
of directors on the board.
The fact that the AOR board of directors will be staggered may have the
effect of making it more difficult to change the composition of the board, and
thus may make effecting a change of control of AOR more difficult. At least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in the majority of a classified board. Such a delay may help
ensure that incumbent directors, if confronted by a holder attempting to force
a proxy contest, a tender offer or other extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interests of stockholders. On the other hand, the classification of directors
may delay, defer or prevent a takeover attempt that a stockholder might
consider in its best interest.
Number of Directors; Removal of Directors; Filling of Vacancies on the Board of
Directors
AOR's amended and restated certificate of incorporation and amended and
restated bylaws will provide that the number of directors will be fixed from
time to time by resolution of the AOR board of directors. The PRN bylaws also
provide that the number of directors will be fixed from time to time by
resolution of the PRN board of directors. The board of directors of AOR
currently consists of ten members and the board of directors of PRN currently
consists of nine members. The board of directors of the combined company will
consist of fourteen members.
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<PAGE>
AOR's amended and restated certificate of incorporation will provide that
directors may only be removed for cause and then only with the approval of the
holders of two-thirds of the outstanding AOR common stock. AOR's amended and
restated bylaws will further provide that vacancies can be filled only by the
nominating committee of the board of directors. The PRN articles of
incorporation do not limit the ability to remove directors, and the PRN bylaws
provide that vacancies may be filled by a majority of the board of directors or
by the stockholders.
Special Meetings of Stockholders
The PRN articles of incorporation and PRN bylaws provide that special
meetings of the stockholders of PRN, for any purpose or purposes, may be called
by the Chairman of the Board (if any), by the President of PRN or by the PRN
board of directors and must be called by the President of PRN at the request of
the holders of 30% of the issued and outstanding shares of PRN common stock.
The PRN bylaws provide that directors may be removed at a meeting of
stockholders called for that purpose, with or without cause, by the holders of
a majority of the issued and outstanding shares of PRN common stock. AOR's
amended and restated certificate of incorporation and amended and restated
bylaws will provide that special meetings of the stockholders of AOR, for any
purpose or purposes, may be called by the Chairman of the Board (if any), by
the Chief Executive Officer, or by written order of a majority of directors,
but that special meetings may not be called by any other person or persons,
including any stockholder or group of stockholders.
Stockholder Action by Written Consent
PRN's articles of incorporation and bylaws provide that, subject to
exceptions contained in the PRN articles, any action that may be taken at any
annual or special meeting of the stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing
setting forth the action taken is signed by the holders of outstanding common
stock having the number of votes that would be necessary to take such action at
a meeting at which all shares entitled to vote thereon were present and voted.
Under AOR's amended and restated bylaws and amended and restated certificate of
incorporation, AOR stockholders will not be permitted to take action by written
consent.
Stockholder Nominations and Proposals
AOR's amended and restated certificate of incorporation and amended and
restated bylaws establish advance notice procedures with regard to stockholder
nominations of candidates for election as directors and with regard to other
matters to be brought before a meeting of the stockholders. These procedures
provide that the notice of proposed stockholder nominations for the election of
directors or other stockholder proposals must be timely given in writing to
AOR's Secretary or board of directors prior to the meeting at which directors
are to be elected. The procedures also provide that at any stockholders'
meeting, and subject to any other applicable requirements, only business that
has been brought before the meeting by, or at the direction of, the AOR board
of directors or by a stockholder who has timely given prior written notice to
the AOR's Secretary or the board may be conducted. To be timely, a notice given
with respect to any matter to be considered at an annual meeting of the
stockholders must be received at the principal executive offices of AOR not
less than 120 days in advance of the date on which AOR's proxy statement was
released to its stockholders in connection with the previous year's annual
meeting of the stockholders or, if no annual meeting was held the previous year
or the date of the annual meeting has been changed by more than 30 days, no
later than ten days following the earlier of the date a notice of meeting is
mailed or given to stockholders or the date when public disclosure of the
meeting is otherwise made. The notice must contain certain information
specified in AOR's amended and restated certificate of incorporation and
amended and restated bylaws. AOR's amended and restated bylaws further provide
that AOR is not obligated to include any stockholder proposal in its proxy
materials if (1) the board of directors of AOR believes the proponent thereof
has not complied with Sections 13 and 14 of the Securities Exchange Act and the
related rules and regulations or (2) the stockholder proposal is not required
to be included under the Securities Exchange Act and the rules and regulations
thereunder. Only matters for which a special meeting is called may be acted
upon at a special meeting of stockholders.
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<PAGE>
The PRN bylaws do not provide for any special advance notice provisions with
regard to the nomination of candidates for election as directors or with regard
to matters to be brought before an annual or special meeting of the
stockholders of PRN except that in the case of special meetings, the purpose or
purposes for which the special meeting is called must be provided in the
written notice delivered to stockholders.
Amendment of Certain Charter Provisions
Under AOR's amended and restated certificate of incorporation, any amendment
of Article VI of AOR's amended and restated certificate of incorporation, which
provides for a classified board of directors and procedures for the removal of
directors and nomination of directors must be approved by holders of two-thirds
of AOR's capital stock. In addition the notice of the meeting at which such
proposal is to be acted upon must provide notice of such proposed amendment.
The PRN articles do not provide for any special charter amendment
procedures, other than as provided by Texas corporate law.
Amendment of Bylaws
The PRN bylaws may be altered, amended or repealed, or new bylaws may be
adopted, only by the board of directors of PRN. AOR's amended and restated
certificate of incorporation and amended and restated bylaws provide that the
board of directors is expressly authorized to adopt, amend or repeal AOR's
amended and restated bylaws, or adopt new bylaws, without any action on the
part of the stockholders of AOR. Bylaws adopted or amended by the board of
directors of AOR may be amended, altered or repealed by the vote of holders of
two-thirds of the outstanding shares of the AOR common stock.
Authorized Capital Stock
AOR's amended and restated certificate of incorporation provides that AOR
will have the authority to issue 250,000,000 shares of AOR common stock and
2,000,000 shares of preferred stock, par value $.01 per share. No shares of AOR
preferred stock are outstanding. The PRN articles provide that PRN has the
authority to issue 150,000,000 shares of PRN common stock and 10,000,000 shares
of preferred stock, no par value per share. No shares of PRN preferred stock
are outstanding.
Rights Plans
AOR has entered into a rights agreement under which Series A Preferred Stock
Purchase Rights (the "AOR Rights") are attached to the outstanding shares of
AOR common stock. The AOR Rights entitle the registered holder to purchase from
AOR one one-thousandth of a share of AOR Series A preferred stock at a purchase
price of $55.00, subject to adjustment. Each outstanding share of AOR common
stock has one AOR Right attached to it.
The AOR Rights will separate from the shares of AOR common stock upon the
earliest to occur of (i) ten days following a person or group of affiliated or
associated persons, subject to certain exceptions, having acquired beneficial
ownership of 15% or more of the outstanding shares of AOR common stock (except
pursuant to a Permitted Offer, as hereinafter defined) or (ii) ten days (or
such later date as the AOR board may determine) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in a person or group becoming an Acquiring
Person (as hereinafter defined) (the earliest of such dates being called the
"Distribution Date"). A person or group whose acquisition of shares of AOR
common stock causes a Distribution Date pursuant to clause (i) above is an
"Acquiring Person." The date that a person or group becomes an Acquiring Person
is the "Stock Acquisition Date."
AOR's rights agreement provides that, until the Distribution Date, the AOR
Rights will be transferred with and only with the shares of AOR common stock.
Until the Distribution Date (or earlier redemption or
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expiration of the AOR Rights) new certificates in respect of AOR common stock
issued after June 2, 1997 upon transfer or new issuance of shares of AOR common
stock will contain a notation incorporating AOR's rights agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the AOR Rights), the surrender for transfer of any certificates for shares of
AOR common stock outstanding as of June 2, 1997, even without such notation or
a copy of a summary of AOR Rights being attached thereto, will also constitute
the transfer of the AOR Rights associated with the shares of AOR common stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the AOR Rights will be
mailed to holders of record of the shares of AOR common stock as of the close
of business on the Distribution Date (and to each initial record holder of
certain shares of AOR common stock issued after the Distribution Date), and
such separate AOR right certificates alone will evidence the AOR Rights.
The AOR Rights are not exercisable until the Distribution Date and will
expire at the close of business on May 16, 2007 unless earlier redeemed by AOR
as described below.
In the event that any person becomes an Acquiring Person, except pursuant to
a tender or exchange offer for all outstanding shares of AOR common stock at a
price and on terms which a majority of certain members of the board of
directors determines to be adequate and in the best interests of AOR (such an
offer, a "Permitted Offer"), its stockholders and other relevant
constituencies, other than such Acquiring Person and its affiliates and
associates, each holder of an AOR Right will thereafter have the right, known
as a "Flip-In Right," to receive upon exercise the number of shares of AOR
common stock or of one-thousandths of a share of Series A preferred stock (or,
in certain circumstances, other securities of AOR) having a value immediately
prior to such triggering event equal to two times the exercise price of the AOR
Right. Notwithstanding the foregoing, following the occurrence of the event
described above, all AOR Rights that are, or under certain circumstances
specified in the AOR rights agreement were, beneficially owned by any Acquiring
Person or any affiliate or associate thereof will be null and void.
In the event that, at any time following the Stock Acquisition Date, (i) AOR
merges or consolidates with another party (as further detailed below) and
subsequent to the transaction the holders of all of the outstanding shares of
AOR common stock immediately prior to the consummation of the transaction are
not the holders of all of the surviving corporation's voting power or (ii) more
than 50% of AOR's assets or earning power is sold or transferred, (in the case
of (i) or (ii) above with or to an Acquiring Person or any affiliate or
associate or any other person in which such Acquiring Person, affiliate or
associate has an interest or any person acting on behalf of or in concert with
such Acquiring Person, affiliate or associate, or, if in such transaction all
holders of shares of AOR common stock are not treated alike, any other person)
then each holder of an AOR Right (except AOR Rights which previously have been
voided as set forth above) shall thereafter have the right, known as a "Flip-
Over Right," to receive, upon exercise, common shares of the acquiring company
having a value equal to two times the exercise price of the AOR Right. The
holder of an AOR Right will continue to have this Flip-Over Right whether or
not such holder exercises or surrenders the Flip-In Right described in the
prior paragraph.
The Purchase Price payable, and the number of Series A preferred shares,
shares of AOR common stock or other securities issuable, upon exercise of the
AOR Rights are subject to adjustment from time to time to prevent dilution (i)
in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A preferred shares, (ii) upon the grant to
holders of the Series A preferred shares of certain rights or warrants to
subscribe for or purchase Series A preferred shares at a price, or securities
convertible into Preferred Shares with a conversion price, less than the then
current market price of the Series A preferred shares or (iii) upon the
distribution to holders of the Series A preferred shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding AOR Rights and the number of one one-thousandths
of a Series A preferred share issuable upon exercise of each AOR Right are also
subject to adjustment in the event of a stock split of
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the shares of AOR common stock or a stock dividend on the shares of AOR common
stock payable in shares of AOR common stock or subdivisions, consolidations or
combinations of the shares of AOR common stock occurring, in any such case,
prior to the Distribution Date. For a description of the Series A preferred
shares see "Preferred Stock."
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
such purchase price. No fractional Series A preferred shares will be issued
(other than fractions which are one one-thousandth or integral multiples of one
one-thousandth of a preferred share, which may, at the election of AOR, be
evidenced by depositary receipts) and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Series A preferred shares on the
last trading day prior to the date of exercise.
At any time prior to the earlier to occur of (a) the close of business on
the tenth day after a person becomes an Acquiring Person or (b) the expiration
of the AOR Rights, and under certain other circumstances, AOR may, upon the
action of the board of directors, redeem the AOR Rights in whole, but not in
part, at a price of $.01 per AOR Right. Additionally, at any time following the
Stock Acquisition Date and the expiration of any period during which the holder
of AOR Rights may exercise Flip-In Rights described above, but prior to any
event giving rise to a Flip-Over Right described above, AOR may redeem the then
outstanding AOR Rights in whole, but not in part, at such redemption price,
provided that such redemption is in connection with a merger or other business
combination transaction or series of transactions involving AOR in which all
holders of AOR common stock are treated alike but not involving an Acquiring
Person or its affiliates or associates.
All of the provisions of AOR's rights agreement may be amended by the board
of directors of AOR prior to the Distribution Date. After the Distribution
Date, the provisions of AOR's rights agreement may be amended by the AOR board
in order to cure any ambiguity, defect or inconsistency, to make changes which
do not adversely affect the interests of holders of AOR Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under AOR's rights agreement. Until an AOR
Right is exercised, the holder thereof, as such, has no rights as a stockholder
of AOR, including, without limitation, the right to vote or to receive
dividends.
Under AOR's rights plan, the AOR Rights are not applicable to the merger or
the transactions contemplated by the merger.
PRN has entered into a rights plan which has substantially similar terms as
AOR's rights plan except that the exercise price is different and the threshold
upon which the rights will separate from the PRN common stock is the
acquisition or right to acquire 18% or more of the outstanding shares of PRN
common stock (or 10% or more of such shares if PRN's board of directors, after
reasonable inquiry and investigation, declares the acquiring person an "Adverse
Person" under guidelines set forth in PRN's rights agreement) rather than 15%.
The PRN rights plan has been amended to clarify that the rights would not be
applicable to the merger or the transactions contemplated by the merger.
Business Combination Statutes
Section 203 of the Delaware General Corporate Law (the "DGCL") prohibits a
publicly held Delaware corporation like AOR from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless (i) prior to such date either the business combination or
the transaction which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock (excluding certain shares) or (iii) on or after such
date, the business combination is approved by the board and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. A "business combination" as defined in the DGCL
includes a merger, asset sale and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" as defined in the DGCL
is a person who,
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together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. AOR is subject to Section 203 of
the DGCL.
Article 13.02 of the Texas Business Corporation Act (the "TBCA") prohibits a
publicly held Texas corporation like PRN from engaging in a "business
combination" with an "affiliated shareholder," or any affiliate or associate of
the "affiliated shareholder," for a period of three years immediately following
the affiliated shareholders' acquisition of such shares unless: (i) prior to
such date the business combination or acquisition of shares is approved by the
board of directors of the corporation or (ii) the business combination is
approved by the affirmative vote of the holders of 66 2/3% of the outstanding
voting stock not owned by the affiliated shareholder or its affiliates or
associates at a meeting of shareholders called for that purpose not less than
six months after the share acquisition date. A "business combination" as
defined in the TBCA includes a merger, asset sale and other transactions
resulting in a financial benefit to the shareholder. An "affiliated
shareholder" is defined in the TBCA as a person who beneficially owns, or
within the preceding three-year period was the beneficial owner of, 20% or more
of the then outstanding shares of voting stock. PRN is subject to Article 13.02
of the TBCA.
Stockholder Approval of Certain Business Combinations
The DGCL provides that the approval by the holders of a majority of the
outstanding shares of stock of a corporation entitled to vote thereon would be
required to approve a merger or share exchange.
The TBCA provides that, unless the board of directors requires a greater
vote, the approval of at least 66 2/3% of the outstanding shares of stock of
such corporation entitled to vote thereon would be required to approve a merger
or share exchange.
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PRINCIPAL STOCKHOLDERS OF AOR AND PRN
The following tables set forth information with respect to the beneficial
ownership of AOR common stock and PRN common stock as of April 30, 1999 (or
such other date indicated below) by (i) each owner of more than 5% of such
common stock, (ii) each director of AOR or PRN, respectively, (iii) certain
executive officers of AOR and PRN, respectively, including the Chief Executive
Officers and the four most highly compensated officers other than the Chief
Executive Officer who were serving as officers at December 31, 1998, and (iv)
all executive officers and directors of AOR and PRN, as the case may be, as a
group. Except as otherwise indicated below, each of the entities and persons
named in the tables has sole voting and investment power with respect to all
shares of common stock beneficially owned. For purposes of these tables, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of a given date which such person has the right to acquire within 60
days after such date. For purposes of computing the percentage of outstanding
shares held by each person or group of persons named below on a given date, any
security which such person or persons has the right to acquire within 60 days
after such date is deemed to be outstanding for the purpose of computing the
percentage ownership of such person or persons, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person. Unless otherwise indicated, the address for each of the individuals or
entities named in the tables below is the principal executive offices of AOR or
PRN, as applicable. The percentage ownership after the merger assumes the
issuance of 50,000,000 shares of AOR common stock in the merger.
AMERICAN ONCOLOGY RESOURCES, INC.
Beneficial Ownership of AOR Common Stock
<TABLE>
<CAPTION>
Number of
shares Amount of Beneficial Number of AOR
(including Ownership options
options --------------------- currently
included Percentage Percentage exercisable or
in column before the after the exercisable
Name 4) merger merger within 60 days
---- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
R. Dale Ross................. 1,878,428 5.0% 2.1% 1,878,428
Lloyd K. Everson, M.D........ 392,166 1.1% * 347,864
David S. Chernow............. 60,373 * * 58,242
R. Allen Pittman............. 45,600 * * 45,600
L. Fred Pounds............... 362,779 1.0% * 333,492
Russell L. Carson............ 1,861,157(1) 5.2% 2.2% 7,000
James E. Dalton, Jr.......... 7,000 * * 7,000
Kyle M. Fink, M.D............ 509,258 1.4% * 7,000
Stanley M. Marks, M.D........ 116,796(2) * * 5,000
Richard B. Mayor............. 102,454 * * 32,000
Magaral S. Murali, M.D....... 459,474 1.3% * 7,000
Robert A. Ortenzio........... 53,007(3) * * 7,000
Edward E. Rogoff, M.D........ 133,735(4) * * 10,000
Welsh, Carson, Anderson &
Stowe....................... 1,452,154(5) 4.1% 1.7% 0
T. Rowe Price Associates,
Inc......................... 2,526,071(6) 7.1% 3.0% 0
100 E. Pratt Street
Baltimore, Maryland 21202
Brown Investment Advisory &
Trust Company............... 2,255,942(7) 6.3% 2.6% 0
19 South Street
Baltimore, Maryland 21202
Putnam Investments, Inc...... 2,192,900(8) 6.2% 2.6% 0
One Post Office Square
Boston, Massachusetts 02109
All executive officers and
directors as a group (15
persons).................... 6,223,643 16.1% 7.0% 2,920,834
</TABLE>
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<PAGE>
- --------
*Less than one percent.
(1) Includes 1,452,154 shares owned by Welsh, Carson, Anderson & Stowe V, L.P.
Mr. Carson disclaims beneficial ownership of such shares that exceed his
pecuniary interest therein. Includes 4,000 shares held by family trusts.
Mr. Carson disclaims beneficial ownership of such shares.
(2) Does not include 116,326 shares of AOR common stock that Dr. Marks has the
right to receive from AOR for no additional consideration on April 1, 2000.
(3) Excludes 48,588 shares of AOR common stock with respect to which Mr.
Ortenzio has a remainder interest.
(4) Includes 20,000 shares held by the Miked Profit Sharing Plan, of which Dr.
Rogoff is a trustee and beneficiary. Excludes 218,180 shares of AOR common
stock Dr. Rogoff is entitled to receive on January 31, 2000 for no
additional consideration.
(5) Welsh, Carson, Anderson & Stowe's address is: 1 World Financial Center,
Suite 3601, New York, New York 10281. Includes 1,452,154 shares owned by
Welsh, Carson, Anderson & Stowe V, L.P. Mr. Carson disclaims beneficial
ownership of such shares that exceed his pecuniary interest therein.
(6) Ownership as of December 31, 1998, as indicated on a Schedule 13-G filed
with the Securities and Exchange Commission. The Schedule 13-G discloses
that such person has sole voting power with respect to 492,571 of such
shares and sole dispositive power with respect to all such shares and does
not have shared voting or dispositive power with respect to any such
shares.
(7) Ownership as of December 31, 1998, as indicated on a Schedule 13-G filed
with the Securities and Exchange Commission. Includes 1,717,058 shares of
AOR common stock owned by Brown Advisory Incorporated, a wholly owned
subsidiary of Brown Investment Advisory & Trust Company. The Schedule 13-G
discloses that such persons together have sole voting power with respect to
2,193,242 of such shares, and no voting power with respect to any other
shares.
(8) Ownership as of December 31, 1998, as indicated on a Schedule 13-G filed
with the Securities and Exchange Commission. Includes 1,658,100 shares
beneficially owned by Putnam Investment Management, Inc., and 534,800
shares beneficially owned by The Putnam Advisory Company. The Schedule 13-G
discloses that such persons do not have sole voting or dispositive power
with respect to any such shares, such persons together share dispositive
power with respect to all of such shares and The Putnam Advisory Company
has shared voting power with respect to 426,800 such shares.
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<PAGE>
PHYSICIAN RELIANCE NETWORK, INC.
Beneficial Ownership of PRN Common Stock
<TABLE>
<CAPTION>
Amount of Beneficial Ownership
------------------------------------------------------------------------------------------
Number of PRN options Number of
currently exercisable or AOR shares
Number of exercisable within 60 after the Number of
shares days without giving effect merger AOR options
(including Percentage to any acceleration of (including Percentage exercisable
options in before the vesting as a result options in after the after the
Name column 3) merger of the merger column 6) merger merger
---- ---------- ---------- -------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John T. Casey (1)(2).... 135,000 * 125,000 733,200 * 723,800
Joseph S. Bailes,
M.D.(1)(7)............. 285,502(3) * 144,238 402,087(3) * 269,299
O. Edwin French(1)...... 96,500 * 87,500 393,860 * 385,400
Michael N. Murdock(1)... 55,000 * 55,000 222,780 * 222,780
George P. McGinn,
Jr.(1)................. 158,000 * 137,500 249,570 * 230,300
Nancy G. Brinker(2)..... 55,270 * 48,520 51,954 * 45,609
Robert W. Daly(2)....... 47,466(4) * 45,872 44,618(4) * 43,120
Boone Powell, Jr.(2).... 59,288(5) * 39,288 55,731(5) * 36,931
J. Taylor Crandall(2)... 2,840,732(6) 5.5% 38,232 2,670,288(6) 3.1% 35,938
201 Main Street
Fort Worth, TX 76102
Terrence J.
Mulligan(7)............ 43,232 * 38,232 40,638 * 35,938
Burton S. Schwartz,
M.D.(2)................ 9,274 * -- 8,718 * --
Stephen E. Jones,
M.D.(2)................ 99,000 * -- 93,060 * --
FW Physicians Investors,
L.P.................... 3,296,000(8) 6.4% -- 3,098,240(8) 3.6% --
201 Main Street
Fort Worth, TX 76102
Kaufmann Fund, Inc...... 3,731,800(9) 7.2% -- 3,507,892(9) 4.1% --
140 East 45th Street
43rd Floor
New York, NY 10017
Texas Oncology, P.A..... 8,778,823(10) 16.9% -- 8,252,093(10) 9.6% --
Two Lincoln Centre
Suite 900
5420 LBJ Freeway
Dallas, TX 75240
All executive officers
and directors as a
group (12 persons)..... 12,663,087(11) 24.4% 759,382 13,218,598(11) 15.4% 2,029,115
</TABLE>
- --------------------------
* Less than one percent.
(1) Named Executive Officer.
(2) Current director of PRN and expected to be a director of AOR after the
merger.
(3) Includes 10,000 shares subject to options granted by Texas Oncology, P.A.
See Note 10.
(4) Includes 1,594 shares representing Mr. Daly's pro rata ownership of a
partnership.
(5) Does not include 2,548,568 shares beneficially owned by Baylor University
Medical Center ("BUMC"), for which Mr. Powell serves as president and chief
executive officer, as to which Mr. Powell disclaims beneficial ownership.
(6) All shares are beneficially owned by FW Physicians Investors, L.P., an
investment limited partnership ("FW Physicians"). Mr. Crandall serves as
the president of Group 31, Inc. ("Group 31"), the general partner of FW
Physicians. See Note 8.
(7) Current director of PRN.
(8) Includes 2,802,500 shares beneficially owned by FW Physicians and 493,500
shares beneficially owned by Keystone, Inc., an investment company
("Keystone"). Based upon information set forth in a Schedule 13D/A filed on
January 11, 1999 with the SEC by FW Physicians, Group 31, Mr. Crandall,
Keystone, and Robert M. Bass, who serves as president of Keystone
(collectively referred to herein as the "FW Investors"). Mr. Crandall
serves as vice president and chief financial officer of Keystone. See Note
6.
(9) Based solely upon information set forth in Amendment 1 to Schedule 13G
filed on January 29, 1998 with the SEC by The Kaufmann Fund, Inc., a mutual
fund.
(10) Based solely upon information provided by Texas Oncology, P.A. Includes
1,381,972 shares subject to options granted by Texas Oncology, P.A. to
certain persons, including Dr. Bailes. See Note 3.
(11) Includes shares beneficially owned by Texas Oncology, P.A. See Note 10.
Does not include shares beneficially owned by BUMC.
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<PAGE>
DESCRIPTION OF AOR CAPITAL STOCK
The following summary of AOR's capital stock is qualified in its entirety by
reference to AOR's amended and restated certificate of incorporation which is
attached as Appendix E to this joint proxy statement and prospectus and AOR's
amended and restated bylaws, which are filed as an exhibit to the registration
statement of which this joint proxy statement and prospectus is a part. See
"Where You Can Find More Information."
AOR Common Stock
AOR is currently authorized to issue 80,000,000 shares of AOR common stock,
$.01 par value per share. The amended and restated certificate of incorporation
would increase the authorized shares of AOR common stock to 250,000,000. As of
May 10, 1999, 35,627,773 shares of AOR common stock were issued and outstanding
and, based on capitalization of PRN as of May 10, 1999, after giving effect to
the merger, approximately 85,700,000 shares of AOR common stock will be issued
and outstanding. In addition, as of May 10, 1999, AOR had granted (net of
cancellations) options to purchase up to 9,136,256 shares of AOR common stock,
of which 6,882,364 were outstanding with an average exercise price of $8.42 per
share, and as of May 10, 1999, AOR has agreed to issue 13,639,990 shares of AOR
common stock for no additional consideration to its affiliated physicians at
specified future dates.
Holders of AOR common stock are entitled to one vote per share on all
matters on which the holders of AOR common stock are entitled to vote. Because
holders of AOR common stock do not have cumulative voting rights, holders of a
majority of the shares voting for the election of directors can elect all of
the members of the board of directors. Except as specified in AOR's amended and
restated certificate of incorporation, a majority vote is also sufficient for
other actions that require the vote or concurrence of stockholders. AOR common
stock is not redeemable and has no conversion or preemptive rights. All of the
outstanding shares of AOR common stock are, and all of the shares issuable in
the merger will be, when issued, fully paid and non-assessable. In the event of
the liquidation or dissolution of AOR, subject to the rights of the holders of
any outstanding shares of AOR's preferred stock, the holders of AOR common
stock are entitled to share pro rata in any balance of the corporate assets
available for distribution to them. AOR may pay dividends if, when and as
declared by the board of directors from funds legally available therefor. AOR's
credit facility with First Union National Bank currently prohibits AOR from
paying dividends or making any other distribution on the AOR common stock.
AOR Preferred Stock
AOR is authorized to issue up to 1,000,000 shares of preferred stock, par
value $.01 per share. The amended and restated certificate of incorporation
would increase the authorized shares of AOR preferred stock to 2,000,000.
500,000 of such shares have been designated as Series A Preferred Stock in
connection with AOR's rights agreement. No shares of preferred stock are
currently outstanding. AOR's board of directors is authorized to issue the
preferred stock in series and, with respect to each series, to determine the
number of shares in any such series, and fix the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of
shares of any series of preferred stock. The board of directors could, without
stockholder approval, issue preferred stock with voting rights and other rights
that could adversely affect the voting power of holders of AOR common stock and
could be used to prevent a third party from acquiring control of AOR. AOR has
no present plans to issue any shares of preferred stock.
Shares of Series A Preferred Stock purchasable upon exercise of the AOR
Rights will not be redeemable. Each Series A preferred share will be entitled
to a minimum preferential quarterly dividend payment of $10.00 per share but,
if greater, will be entitled to an aggregate dividend per share of 1,000 times
the dividend declared per share of AOR common stock. In the event of
liquidation, the holders of the Series A preferred shares will be entitled to a
minimum preferential liquidation payment of $1,000 per share; thereafter, the
holders of the shares of AOR common stock receive a liquidation payment of
$1.00 per share, the holders of the Series A preferred shares and the holders
of the shares of AOR common stock will share the remaining assets in the ratio
of 1,000 to 1 (as adjusted) for each Series A preferred share and share of AOR
common stock so held, respectively. Finally, in the event of any merger,
consolidation or other transaction in which
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<PAGE>
shares of AOR common stock are exchanged, each Series A preferred share will be
entitled to receive 1,000 times the amount received per share of AOR common
stock. These rights are protected by customary antidilution provisions. In the
event that the amount of accrued and unpaid dividends on the Series A preferred
shares is equivalent to six full quarterly dividends or more, the holders of
the Series A preferred shares shall have the right, voting as a class, to elect
two directors in addition to the directors elected by the holders of the shares
of AOR common stock until all cumulative dividends on the preferred shares have
been paid through the last quarterly dividend payment date or until non-
cumulative dividends have been paid regularly for at least one year.
Rights Agreement
On May 16, 1997 AOR's board of directors declared a dividend distribution of
one AOR Right for each outstanding share of AOR common stock. The dividend was
payable to the stockholders of record on June 2, 1997 and with respect to
shares of AOR common stock issued thereafter until the Distribution Date and,
in certain circumstances, with respect to shares of AOR common stock issued
after the Distribution Date. The description and terms of the AOR Rights are
set forth in the Rights Agreement between AOR and American Stock Transfer &
Trust Company, as Rights Agent, dated as of May 29, 1997. See "Comparative
Rights of Stockholders of AOR and PRN--Rights Plans."
Special Provisions of the Certificate of Incorporation and Delaware Law
The provisions of AOR's amended and restated certificate of incorporation
and amended and restated bylaws may be deemed to have an anti-takeover effect
or may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by a stockholder.
Limitation of Director Liability. Section 102(b)(7) of the DGCL ("Section
102(b)") authorizes corporations to limit or to eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. Although Section
102(b) does not change directors' duty of care, it enables corporations to
limit available relief to equitable remedies such as injunction or rescission.
The AOR certificate limits the liability of directors to AOR or its
stockholders to the full extent permitted by Section 102(b). Specifically,
directors of AOR will not be personally liable for monetary damages for breach
of a director's fiduciary duty as a director, except for liability: (i) for any
breach of the director's duty of loyalty to AOR or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the DGCL or (iv)
for any transaction from which the director derived an improper personal
benefit.
Indemnification. To the maximum extent permitted by law, AOR's amended and
restated bylaws provide for mandatory indemnification of directors and officers
of AOR against all expense, liability and loss to which they may become
subject, or which they may incur, as a result of being or having been a
director or officer of AOR. In addition, AOR must advance or reimburse
directors and officers for expenses incurred by them in connection with
indemnifiable claims.
Delaware Anti-Takeover Law. Section 203 of the DGCL prohibits a publicly
held Delaware corporation like AOR from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
(i) prior to such date either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock (excluding certain shares), or (iii) on or after such date, the
business combination is approved by the board and by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" as defined in the
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DGCL includes a merger, asset sale and other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" as defined in
the DGCL is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. AOR
is subject to Section 203 of the DGCL.
The provisions of Section 203, coupled with the board's authority to issue
preferred stock without further stockholder action, could delay or frustrate
the removal of incumbent directors or a change in control of AOR. The
provisions also could discourage, impede or prevent a merger, tender offer or
proxy contest, even if such event would be favorable to the interests of
stockholders. AOR's stockholders, by adopting an amendment to the AOR's amended
and restated certificate of incorporation, may elect not to be governed by
Section 203, which election would be effective 12 months after such adoption.
Neither AOR's amended and restated certificate of incorporation nor AOR's
amended and restated bylaws exclude AOR from the restrictions imposed by
Section 203.
Authorized but Unissued Shares
Authorized but unissued shares of AOR common stock or AOR preferred stock
can be reserved for issuance by the board of directors of AOR from time to time
without further stockholder action for proper corporate purposes, including
stock dividends or stock splits, raising equity capital and structuring future
corporate transactions, including acquisitions.
Registration Rights
As of April 30, 1999, holders of 13,639,990 shares of AOR common stock to be
issued to affiliated physicians at specified future dates have certain rights
with respect to registration under the Securities Act. In general, each holder
of shares subject to such rights has piggyback registration rights with respect
to a maximum of 50% of such holder's shares subject to such rights in the event
AOR proposes to register with the SEC an underwritten public sale of any shares
of AOR common stock. These rights became available six months after AOR's
initial public offering and expire five years after the grant of the
registration rights. These rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit
the number of shares included in such registration. AOR is obligated to bear
all the expenses in connection with the registration of the shares subject to
such rights, except underwriting discounts and commissions and fees and
disbursements of legal counsel to holders thereof.
Transfer Agent
AOR's transfer agent and registrar for the AOR common stock is American
Stock Transfer and Trust Company.
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PROPOSAL 2: ADOPTION OF AOR'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Under the terms of the merger agreement, AOR agreed to adopt, subject to
stockholder approval, an amended and restated certificate of incorporation and
to submit it to its stockholders for their approval simultaneously with their
consideration of the merger. The approval and adoption of AOR's amended and
restated certificate of incorporation is a condition to the merger and will
only be effective if the merger is completed. AOR's amended and restated
certificate of incorporation has been approved by AOR's board of directors,
subject to AOR stockholder approval and completion of the merger, and is
attached to this joint proxy statement and prospectus as Appendix E. The
amended and restated certificate of incorporation amends AOR's existing
certificate of incorporation as set forth below. AOR stockholders are
encouraged to review the full text of the AOR's amended and restated
certificate of incorporation in connection with their consideration of the
following proposal.
2(a) Name Change
AOR's amended and restated certificate of incorporation changes the name of
the combined company to "US Oncology, Inc."
AOR's board of directors believes that the change of corporate name is
desirable in that the new name will clearly establish a new identity for the
combined company.
The name change will not affect, in any way, the validity or transferability
of currently outstanding stock certificates, nor will the combined company's
stockholders be required to surrender or exchange any stock certificates that
they currently hold. In addition, the combined company will request that The
Nasdaq Stock Market allow the combined company to change its ticker symbol to
"USON."
2(b) Increase in Authorized Shares
The authorized capital stock of AOR currently consists of 80,000,000 shares
of common stock, par value $.01 per share, and 1,000,000 shares of preferred
stock, par value $.01 per share. On the record date for AOR's annual meeting,
35,627,773 shares of AOR common stock were issued and outstanding, and
20,522,354 shares were reserved for issuance at specified future dates in
connection with completed physician affiliations or upon exercise of
outstanding options.
In order to complete the merger, in which approximately 50,000,000 shares
will be issued, it is necessary to increase the authorized capital of AOR. In
addition, the board of directors of AOR believes that it is in the best
interests of AOR to have additional shares of AOR common stock and preferred
stock available for issuance, at the board of directors' discretion, for future
acquisitions, stock splits, stock dividends, equity financings, employee
benefit plans and other corporate purposes. Accordingly, the amended and
restated certificate of incorporation approved by AOR's board of directors
would increase the number of shares of AOR common stock available for issuance
from 80,000,000 to 250,000,000 and to increase the number of shares of
preferred stock available for issuance from 1,000,000 to 2,000,000.
The additional shares of AOR common stock or preferred stock may be issued
from time to time upon authorization of the board of directors, without further
approval by the stockholders unless required by applicable law or The Nasdaq
Stock Market rules, which generally require the approval of a majority of AOR's
stockholders when AOR stock is to be issued if such AOR stock would have voting
power equal to or in excess of 20% of the voting power outstanding, and for
such consideration as the AOR board of directors may determine and as may be
permitted by applicable law.
The increase in authorized shares is not being proposed as a means of
preventing or dissuading a change in control or takeover of AOR. However, use
of these shares for such a purpose is possible. Shares of authorized but
unissued or unreserved AOR common stock and preferred stock, for example, could
be issued in
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an effort to dilute the stock ownership and voting power of persons seeking to
obtain control of AOR or could be issued to purchasers who would support the
board of directors in opposing a takeover proposal. In addition, the increase
in authorized shares, if approved, may have the effect of discouraging a
challenge for control or make it less likely that such a challenge, if
attempted, would be successful.
The proposed amended and restated certificate of incorporation does not
change the terms of the AOR common stock or AOR preferred stock, neither of
which has preemptive rights. The additional shares of AOR common stock for
which authorization is sought will have the same voting rights, the same rights
to dividends and distributions and will be identical in all other respects to
the shares of AOR common stock now authorized.
2(c) AOR Board of Directors Composition, Nomination, Removal and Appointment
Staggered Board. AOR's board of directors has determined that it would be
advisable to provide for staggered elections of the board of directors, such
that each director would be elected to a three-year term with roughly one-third
of the directors elected each year.
AOR's directors are presently elected annually to hold office until the next
annual meeting of stockholders and until their successors are elected and
qualified. If the amended and restated certificate of incorporation is approved
by the stockholders, directors will be elected for three-year terms, with
approximately one-third of such overall directors elected each year, except
that in order to implement the staggered board amendment at the AOR annual
meeting, Class I Directors will be elected for a one-year term, Class II
Directors will be elected for a two-year term and Class III Directors will be
elected for a full three-year term. Thereafter, Class I Directors will be
elected for a full three-year term commencing with the 2000 annual meeting of
stockholders and Class II Directors will be elected for a full three-year term
commencing with the 2001 annual meeting of stockholders. Delaware law provides
that a director elected by the board of directors to fill a vacancy serves
until the next annual meeting of stockholders and until his successor is
elected and qualifies. In the event that the stockholders do not approve AOR's
amended and restated certificate of incorporation, the directors elected at the
annual meeting will continue to serve until the next annual meeting.
The AOR board of directors believes that a staggered system of electing
directors would help assure continuity and stability of AOR's business
strategies and policies. Because at least two stockholder meetings will
generally be required to effect a change in control of the board, a majority of
directors at any given time will have prior experience as directors of AOR.
This is particularly important to a growth-oriented organization, such as AOR.
In addition, in the event of an unfriendly or unsolicited proposal to take over
or restructure AOR, the staggered board system would give AOR time to negotiate
with the sponsor, to consider alternative proposals and to assure that
stockholder value is maximized.
A staggered board of directors may be deemed to have an anti-takeover effect
because it may create, under certain circumstances, an impediment which would
frustrate persons seeking to effect a takeover or otherwise gain control of
AOR. A possible acquiror may not proceed with a tender offer because it would
be unable to obtain control of AOR's board of directors for a period of at
least two years. Generally, approximately one-third of the sitting board of
directors would be up for election at any annual meeting of the stockholders.
Removal of Directors for Cause. Delaware law provides generally that
directors may be removed from office with or without cause by the affirmative
vote of a majority of all of the votes entitled to be cast for the election of
directors. Because the ability of a simple majority of the stockholders to
remove any director from office without cause could frustrate the purposes of
the proposed staggered board amendment, AOR's amended and restated certificate
of incorporation also provides that a director may be removed from office prior
to the expiration of his or her term only for cause and then only by the
affirmative vote of the holders of at least two-thirds of the aggregate
combined voting power of all classes of capital stock entitled to vote in the
election of directors, voting as one class. Cause to remove is defined to exist
only if the director whose removal is proposed has been convicted of a felony
by a court of competent jurisdiction and such conviction is no longer subject
to direct appeal or has been adjudged by a court of competent jurisdiction to
be liable for
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negligence or misconduct in the performance of his duty to AOR in a matter of
substantial importance to the corporation, and such adjudication is no longer
subject to direct appeal.
Under certain circumstances, the effect of these changes may be to impede
the removal of a director or directors of AOR, thus precluding a person or
entity from immediately acquiring control of AOR's board through the removal of
existing directors and the election of his or its nominees to fill the newly-
created vacancies. Despite these removal provisions, all incumbent directors
are subject to nomination and re-election by the stockholders at the end of
their term.
Stockholder Nominations for Directors. AOR's amended and restated
certificate of incorporation also provides for a mechanism for stockholders to
nominate directors. Under the proposal, in order for nomination for directors
by stockholders to be considered at an annual meeting of stockholders, such
nominations must be received not later than 120 days prior to the anniversary
of the record date for the prior year's annual meeting or, if the date of the
annual meeting is not within 30 days of the anniversary of the prior year's
annual meeting, within ten days of the transmittal of the notice of meeting to
stockholders or other public announcement of the meeting. In addition,
stockholders making nominations are required to furnish certain information
with respect to nominees nominated by them, as well as the nominee's written
consent to being named as a nominee. The AOR board of directors believes that
this provision will help ensure that all relevant information regarding
director nominees can be made available to stockholders well in advance of an
annual meeting and that stockholders will, accordingly, be able to make
informed decisions regarding elections of directors.
Because the directors of AOR will be directly affected by the foregoing
provisions of AOR's amended and restated certificate of incorporation, they may
be deemed to have an interest in the outcome of this proposal.
2(d) Stockholder Action and Calling of Meetings of Stockholders
Delaware law and AOR's existing certificate of incorporation currently
permit stockholders to take action by written consent in lieu of a meeting.
AOR's amended and restated certificate of incorporation provides that
stockholders may only act at a duly convened annual meeting or special meeting
of stockholders. In addition, only the Chairman of the Board, the President or
the board of directors may call a stockholder meeting.
The AOR board of directors believes that by requiring that stockholder
action may be taken only at meetings of stockholders, a full and fair
discussion of such actions is assured. In addition, the requirement ensures
that the provisions relating to advance notice of stockholder proposals and
nominations, which are intended to ensure orderly conduct of corporate
governance matters, are not subverted.
2(e) Vote Required to Amend Certificate of Incorporation
Included in AOR's amended and restated certificate of incorporation is an
article which provides that the provisions of AOR's amended and restated
certificate of incorporation described in 2(c) and 2(d) above and in this 2(e)
can only be amended by the vote of at least two-thirds of the outstanding
shares of common stock. The AOR board of directors believes that this amendment
is important to ensure that the provisions of these amendments cannot be
circumvented by a simple majority vote.
Vote Required for Approval
Approval of AOR's amended and restated certificate of incorporation requires
the affirmative vote of a majority of the outstanding shares of AOR common
stock. If approved by the stockholders of AOR, AOR's amended and restated
certificate of incorporation will become effective immediately prior to the
consummation of the merger.
Recommendation of the Board of Directors.
THE BOARD OF DIRECTORS OF AOR RECOMMENDS THAT THE STOCKHOLDERS OF AOR VOTE
"FOR" THE APPROVAL OF AOR'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
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PROPOSAL 3: APPROVAL OF AMENDMENT TO 1993 AFFILIATE STOCK OPTION PLAN
AOR's board of directors has adopted, subject to approval by the
stockholders of AOR, an amendment to AOR's 1993 Affiliate Stock Option Plan (as
amended and currently in effect, the "Affiliate Plan") amending the Affiliate
Plan to increase the number of shares available for grants under the Affiliate
Plan from 1,000,000 shares of AOR common stock to 3,000,000 shares of AOR
common stock. Subject to the provisions of the Affiliate Plan, AOR's board of
directors retained the right to amend the Affiliate Plan. On December 11, 1998,
AOR's board of directors determined that the Affiliate Plan be amended, subject
to, and to be effective upon, approval by AOR's stockholders and consummation
of the merger:
Text of the Amendment
The text of the amendment is as follows:
The first sentence of Section 5 of the Plan is hereby amended to read in its
entirety as follows:
"The number of shares of AOR common stock available for Stock Options shall
be 3,000,000."
Description of the Affiliate Plan
The following is a description of the Affiliate Plan, as amended by the
proposed amendment.
The Affiliate Plan was adopted by the AOR board of directors in December
1993 and approved by AOR's stockholders in February 1994. The Affiliate Plan
provides only for the grant of nonqualified stock options to individuals who
are not employees of AOR or its subsidiaries at the time of the grant of the
option, with the number of shares of AOR common stock available for such stock
options equal to 3,000,000 shares of AOR common stock. Options under the
Affiliate Plan have been historically granted to physicians and other clinical
employees of affiliated physician groups in order to align their incentives
with those of AOR.
The Affiliate Plan is administered by AOR's compensation committee, which is
authorized, subject to the terms of the Affiliate Plan, to adopt rules and
regulations for carrying out the Affiliate Plan, to select eligible
participants and to determine all appropriate terms and conditions of the grant
of options thereunder, with the decisions of the compensation committee binding
on AOR and the participants under the Affiliate Plan.
The Affiliate Plan provides for the grant of non-qualified stock options to
acquire shares of AOR common stock. Non-qualified options may not be granted
with an exercise price less than 85% of the fair market value per share of AOR
common stock at the date of grant. The exercise price of an option may be paid
in cash, in shares of AOR common stock or in a combination thereof. Vested
options may be exercised during the participant's continued relationship with
AOR and for a period expiring on the earliest of (i) the terms fixed by the
compensation committee (which term shall not exceed ten years from the grant
date), (ii) if the compensation committee fails to fix a term, ten years from
the grant date or (iii) 30 days following termination of such relationship,
unless the participant's relationship is terminated for cause, in which case
vested options terminate at 12:01 a.m. on the date of the participant's
termination, or by reason of death, disability or retirement. If the
participant's relationship is terminated by reason of death, disability or
retirement, any vested options expire on the earliest of (i) the term fixed by
the compensation committee (which term shall not exceed ten years from the
grant date), (ii) if the compensation committee fails to fix a term, ten years
from the grant date or (iii) one year after the participant's death or
disability. In the event of a participant's death or disability, 50% of all
shares covered by stock options that are not vested as of the date of such
event may be exercised fully and immediately without regard to vesting
schedules for the terms described above.
As of May 10, 1999, options to purchase 954,500 shares of AOR common stock
had been granted (exclusive of cancellations) under the Affiliate Plan, of
which 893,450 were outstanding, with a weighted average exercise price of
$11.02.
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Certain Federal Income Tax Consequences
The Affiliate Plan is not a qualified plan under Section 401(a) of the
Internal Revenue Code. Options granted under the Affiliate Plan are
"nonstatutory stock options" and not "restricted," "qualified" or "incentive"
stock options, nor is the Affiliate Plan an "employee stock purchase plan,"
under Sections 422 through 424 of the Internal Revenue Code. Recipients of
options under the Affiliate Plan recognize no income for federal income tax
purposes when options are granted, but recognize ordinary income on the date of
exercise to the extent that the fair market value of AOR common stock on such
date exceeds the exercise price of the options.
AOR is authorized to withhold any tax required to be withheld from the
amount considered as ordinary income to the recipient of shares issued under
the Affiliate Plan. In the event that funds are not otherwise available to
cover any required withholding tax, the recipient will be required to provide
such funds before the shares are issued. AOR will ordinarily be entitled to a
deduction equivalent to the amount of ordinary income recognized by optionees.
Vote Required for Approval
Approval of the proposed amendment to AOR's 1993 Affiliate Stock Option Plan
requires the affirmative vote of the holders of a majority of the outstanding
shares of AOR common stock.
Recommendation of the Board of Directors
THE AOR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
THE AMENDMENT TO AOR'S 1993 AFFILIATE STOCK OPTION PLAN. DULY EXECUTED PROXIES
WILL BE SO VOTED UNLESS A CONTRARY INDICATION IS MADE.
PROPOSAL 4: APPROVAL OF AMENDMENTS TO 1993
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AOR's board of directors has adopted, subject to approval by the
stockholders of AOR and the consummation of the merger, amendments to AOR's
1993 Non-Employee Director Stock Option Plan (the "Director Plan") (a)
providing that at this 1999 annual meeting, each Eligible Director (as defined
in the Director Plan) in office after giving effect to the election of
directors at this 1999 annual meeting and the appointment of directors at the
first board meeting thereafter, shall receive an option to purchase 15,000
shares of AOR common stock at a price determined in accordance with the
provisions of the Director Plan, (b) providing that each Eligible Director
shall receive an option to purchase 2,000 shares for each board committee to
which such director is appointed at the first board meeting following this 1999
annual meeting, at a price determined in accordance with the provisions of the
Director Plan, (c) providing that such options vest in their entirety four
months after the grant date and (d) increasing the number of shares of AOR
common stock issuable under the Director Plan from 200,400 shares to 600,000
shares.
Text of the Amendment
The text of the amendments is as follows:
Capitalized terms not otherwise defined in this Amendment to the Director
Plan have the meanings assigned thereto in the Director Plan. The Director Plan
is hereby amended as follows:
Section III of the Director Plan is hereby amended to read in its entirety
as follows:
"III. Grant of Stock Options; Option Price; Vesting Schedule
(a) Options will be granted only to individuals who are Eligible
Directors of the Company.
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(b) On the date of the 1999 annual meeting of stockholders of the
Company, each Eligible Director who is in office after giving effect to
the election of directors at such meeting shall receive, without the
exercise of the discretion of any person or persons, an option to
purchase 15,000 shares of Common Stock. In addition, each Eligible
Director who is appointed to the Board of Directors at the first board
meeting after the 1999 annual meeting shall receive on the date of such
appointment, without the discretion of any person or persons, an option
to purchase 15,000 shares of Common Stock.
(c) At the first board meeting following the 1999 annual meeting of
stockholders, each Eligible Director appointed at such meeting to any
such committee shall receive, without the exercise of the discretion of
any person or persons, an option to purchase 2,000 shares of Common
Stock for each such committee to which such Eligible Director is
appointed.
(d) All Options granted under the Director Plan shall be at the
Option price set forth in the following subsection (e), shall be
subject to adjustment as provided in Section VII and to the terms and
conditions set forth in Section VIII and shall vest in the manner set
forth in subsection (f) below. All Options granted under the Plan shall
be evidenced by a written option agreement.
(e) The purchase price of Shares issued under each Option shall be
the Fair Market Value of Shares subject to the Option on the date the
Option is granted.
(f) Except to the extent otherwise provided herein, each Option
granted under this Article III shall vest and be exercisable as to all
the Shares covered thereby four months after the effective date of the
grant of such Option."
"(2) The first sentence of Section VI(a) of the Director Plan is hereby
amended to read in its entirety as follows:
"Subject to adjustments as provided in Section VII hereof, a total
of 600,000 Shares shall be subject to the Plan."
Amendment to Provide for One-Time Grant to all Eligible Directors
The proposed amendment to the Director Plan would provide for a one-time
grant of options to purchase 15,000 shares of AOR common stock to each director
who is an Eligible Director (as defined in the Director Plan) and who is in
office on the date of AOR's 1999 annual meeting of stockholders, after giving
effect to any election of directors at such 1999 annual meeting and the
appointment of directors at the first board meeting thereafter. The number of
shares subject to this grant would be adjusted as more fully described in the
Director Plan to reflect changes in AOR's capital stock, such as stock splits
or recapitalizations. Such options would be exercisable for a purchase price
equal to the fair market value (as defined in the Director Plan) of shares
subject to the option on the date the option is granted, and would be fully
exercisable four months from the date of grant.
Under the Director Plan currently in effect, each Eligible Director receives
an option to purchase 5,000 shares of AOR common stock upon first being elected
to the board of directors and an additional option to purchase 3,000 shares of
AOR common stock at each subsequent annual meeting at which such director is
elected. The amendment provides for a one-time grant of an option to purchase
15,000 shares of AOR common stock immediately after the 1999 annual meeting to
all directors who are in office after the meeting. The proposed amendment would
also change the option grant to directors for serving on board committees.
Currently, each Eligible Director receives an option to purchase 1,000 shares
for each committee to which such director is appointed. The amendment changes
the grant from an option to purchase 1,000 shares to an option to purchase
2,000 shares and provides that such option grant to purchase 2,000 shares shall
occur only at the first board meeting following the 1999 annual meeting of
stockholders.
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The purposes of the Director Plan are to provide an additional incentive for
securing and retaining qualified non-employee persons to serve on the board of
directors, and committees thereof, of AOR and to enhance the future growth of
AOR by furthering such persons' identification with the interests of AOR and
its stockholders. The AOR board of directors believes that each of the
foregoing amendments will further this purpose.
Amendment to Increase the Number of Shares of AOR Common Stock Available for
Issuance Under the Director Plan
The proposed amendment would increase the number of shares of AOR common
stock available for issuance under the Director Plan from 200,400 to 600,000.
This increase would help to achieve the Director Plan's purpose by making
available a sufficient number of shares of AOR common stock to enable AOR to
continue to attract and retain qualified individuals to serve as directors and
to continue to provide incentive directors, which promote stockholder value.
Description of the Director Plan
The following is a description of the Director Plan, as amended by the
proposed amendments.
The Director Plan was adopted by AOR's board of directors in June 1993 and
by AOR's stockholders in February 1994. The Director Plan provides for the
automatic grant of options to each director of AOR who is not an employee or
officer of AOR. On the date of the 1999 annual meeting of stockholders of AOR,
each Eligible Director who is in office after giving effect to the elections
held at such meeting and the appointment of directors at the first board
meeting after the 1999 annual meeting of stockholders will receive a grant of
options to purchase 15,000 shares of AOR common stock. In addition, each
Eligible Director who is appointed to a board committee at the first board
meeting after the 1999 annual meeting of stockholders would receive an option
to purchase 2,000 shares of AOR common stock for each such committee to which
such Eligible Director is appointed. The purchase price of shares subject to
stock options granted pursuant to the Director Plan must be the fair market
value (as defined in the Director Plan) of the shares on the date the option is
granted. The number of shares subject to stock options granted pursuant to the
Director Plan is subject to adjustment in the event of a subdivision or
consolidation of shares, other capital readjustment or payment of a stock
dividend. Each stock option granted under the Director Plan has a term of ten
years from its grant date. The exercise price of an option may be paid in cash,
in shares of AOR common stock or in a combination thereof. If the termination
of directorship occurs by reason of death of an Eligible Director, all
unexercised stock options become immediately exercisable and may be exercised
until one year from the date of death or until the earlier expiration of the
stock option. If the termination of a directorship occurs other than by reason
of death of the Eligible Director, all unexercised options expire three months
following the termination of the directorship, unless the stock option
terminates earlier pursuant to the Director Plan. Pursuant to the Director
Plan, as of May 10, 1999, options to purchase an aggregate of 133,000 shares of
AOR common stock had been granted (exclusive of cancellations) to the Eligible
Directors, and 79,000 were outstanding at a weighted average exercise price of
$11.21 per share. Under the Director Plan, a total of 600,000 shares of AOR
common stock are authorized for issuance.
Certain Federal Income Tax Consequences
The Director Plan is not a qualified plan under Section 401(a) of the
Internal Revenue Code. Options granted under the Director Plan are
"nonstatutory stock options" and not "restricted," "qualified" or "incentive"
stock options, nor is the Director Plan an "employee stock purchase plan,"
under Sections 422 through 424 of the Internal Revenue Code. Recipients of
options under the Director Plan recognize no income for federal income tax
purposes when options are granted, but recognize ordinary income on the date of
exercise to the extent that the fair market value of AOR common stock on such
date exceeds the exercise price of the options.
AOR is authorized to withhold any tax required to be withheld from the
amount considered as ordinary income to the recipient of shares issued under
the Director Plan. In the event that funds are not otherwise
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available to cover any required withholding tax, the recipient will be required
to provide such funds before the shares are issued. AOR will ordinarily be
entitled to a deduction equivalent to the amount of ordinary income recognized
by optionees.
Director Plan Benefits Table
It is expected that the following grants would be made under the Director
Plan, as amended, during fiscal 1999:
<TABLE>
<CAPTION>
Total
Shares
Underlying
Option
Name and Position Grants(1)
----------------- ----------
<S> <C>
Non-Executive Directors as a group............................. 225,000
</TABLE>
- --------
(1) No dollar value or exercise price is assigned to the stock options because
the exercise price will be the fair market value of the underlying AOR
common stock on the date of grant.
Vote Required for Approval
Approval of the proposed amendments to AOR's 1993 Non-Employee Director
Stock Option Plan requires the affirmative vote of the holders of a majority of
the outstanding shares of AOR common stock.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
AMENDMENTS TO AOR'S 1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. DULY EXECUTED
PROXIES WILL BE SO VOTED UNLESS A CONTRARY INDICATION IS MADE.
PROPOSAL 5: ELECTION OF AOR DIRECTORS
Nominees for Election as Directors
The following sets forth certain information concerning each of the nominees
for election to the board of directors of AOR at the AOR annual meeting and
each director who will be a member of AOR's board of directors after the merger
becomes effective. If AOR's amended and restated certificate of incorporation
are approved and the merger is consummated, the directors will serve in the
class indicated below. If the merger is not consummated, AOR's certificate of
incorporation will not be amended and the directors who are elected will serve
until the next annual meeting of stockholders or until their successors are
duly elected and qualified.
<TABLE>
<CAPTION>
Director Director
Name Age Since Class
---- --- ------------- --------
<S> <C> <C> <C>
James E. Dalton............................... 56 May 1998 I
Edward E. Rogoff, M.D......................... 56 July 1995 I
Stanley A. Marks, M.D......................... 51 May 1998 II
Robert A. Ortenzio............................ 42 December 1992 II
Russell L. Carson............................. 55 December 1992 III
Richard B. Mayor.............................. 65 February 1993 III
R. Dale Ross.................................. 52 December 1992 III
</TABLE>
Nominees for Directors Whose Terms Expire at the Annual Meeting in 2000 (Class
I Directors)
James E. Dalton has served on AOR's board of directors since May 1998. Mr.
Dalton has served as President, Chief Executive Officer and a director of
Quorum Health Group, Inc. since 1990. Prior to joining Quorum, Mr. Dalton
served as regional vice president with HealthTrust, Inc., as division vice
president of Hospital Corporation of America ("HCA") and as regional vice
president with HCA Management Company.
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Prior to joining HCA, he held management positions with American MediCorp,
Inc., Humana, Inc. and hospitals in Virginia and West Virginia. He serves on
the board of directors of the Nashville Branch of the Federal Reserve Bank of
Atlanta, AmSouth Bank, Housecall Medical Resources, Inc. and the Nashville
Health Care Council. He also serves on the Board of Trustees of Universal
Health Realty Income Trust and Randolph-Macon College. Mr. Dalton is a Fellow
of the American College of Healthcare Executives and is on the board of
directors and past chairman of the Federation of American Health Systems.
Edward E. Rogoff, M.D. has been a director of AOR since July 1995. Dr.
Rogoff obtained his medical degree from the State University of New York,
Downstate Medical School, and his training in radiation oncology from Memorial
Sloan Kettering Cancer Center. He is board certified in radiation oncology.
Since 1978, Dr. Rogoff has been affiliated with Southwest Radiation Oncology,
Ltd., an oncology group in Tucson, Arizona managed by AOR since January 1995.
Dr. Rogoff is a member of numerous professional societies including American
Society of Therapeutic Radiology and Oncology and the American Society of
Clinical Oncology.
Nominees for Directors Whose Terms Expire at the Annual Meeting in 2001 (Class
II Directors)
Stanley A. Marks, M.D. has been a director of AOR since May 1998. Dr. Marks
obtained his medical degree from the University of Pittsburgh School of
Medicine and additional training at Peter Bent Brigham Hospital, Harvard
Medical School and Sidney Farber Cancer Center. Dr. Marks is a member of
numerous professional societies, including the American Society of Hematology
and the American Society of Clinical Oncology. Dr. Marks is a practicing
physician in Pittsburgh, Pennsylvania with Oncology-Hematology Associates, a
physician group affiliated with AOR since April 1995.
Robert A. Ortenzio has been a director of AOR since December 1992. Mr.
Ortenzio has been President and Chief Operating Officer of Select Medical
Corporation since February 1997. Prior to that time, Mr. Ortenzio was a co-
founder and president of Continental Medical Systems, Inc., a provider of
comprehensive medical rehabilitation programs and services, and a director of
Horizon/CMS Healthcare Corporation, and served in various capacities at
Continental Medical Systems, Inc. since February 1986. Mr. Ortenzio is
currently a director of Concentra Managed Care, Inc. and Centennial Healthcare
Corp.
Nominees for Director Whose Terms Expire at the Annual Meeting in 2002 (Class
III Directors)
Russell L. Carson has been a director of AOR since December 1992. Since
1978, Mr. Carson has been a general partner of Welsh, Carson, Anderson &
Stowe, an investment partnership. Mr. Carson is a director of Quorum Health
Group, Inc.
Richard B. Mayor has been a director of AOR since February 1993. Mr. Mayor
was a partner in the Houston law firm of Mayor, Day, Caldwell & Keeton, L.L.P.
from its formation in February 1982 until December 1998. Since January 1999 he
has been Of Counsel to such firm. Mayor, Day, Caldwell & Keeton, L.L.P. serves
as outside legal counsel to AOR.
R. Dale Ross has been a Chairman of the Board of Directors and Chief
Executive Officer of AOR since December 1992. From April 1990 until joining
AOR, Mr. Ross was self-employed. From December 1982 until April 1990, Mr. Ross
was employed by HMSS, Inc., a home infusion therapy company. Mr. Ross founded
HMSS, Inc. and served as its President and Chief Executive Officer and as a
director.
Vote Required for Approval
The seven nominees receiving the highest number of votes will be elected to
AOR's board of directors.
Recommendation of the Board of Directors
THE AOR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF
THE NOMINEES LISTED ABOVE. DULY EXECUTED PROXIES WILL BE SO VOTED UNLESS A
CONTRARY INDICATION IS MADE.
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Additional Directors to be Appointed upon Completion of the Merger
Effective upon completion of the merger, the following persons will be
appointed as directors of the combined company, to serve in the class indicated
below:
<TABLE>
<CAPTION>
Director
Name Age Class
---- --- --------
<S> <C> <C>
J. Taylor Crandall........................................... 45 I
Robert W. Daly............................................... 47 I
Burton S. Schwartz, M.D...................................... 57 I
Nancy G. Brinker............................................. 52 II
John T. Casey................................................ 53 II
Stephen E. Jones, M.D. ...................................... 57 II
Boone Powell, Jr............................................. 62 III
</TABLE>
- --------
All of the above individuals are currently directors of PRN and have
indicated that they will serve as directors of the combined company, if
appointed. Certain information regarding the appointees is set forth below:
J. Taylor Crandall has served on PRN's board of directors since May 1998.
Mr. Crandall served as vice president and chief financial officer of Keystone,
Inc., an investment company, from October 1986 to October 1998 and has served
as the vice president and chief operating officer of Keystone, Inc. since
October 1998. Mr. Crandall is a director of a number of business organizations,
including Sunterra Corporation, Washington Mutual, Inc., Specialty Foods, Inc.,
Bell & Howell Operating Company, Grove Worldwide LLC and Quaker State
Corporation.
Robert W. Daly has been a Director of PRN since October 1993. Mr. Daly has
been a managing director of MedEquity Investors, LLC, a health care venture
capital firm, since December 1997. Mr. Daly served as a managing director of TA
Associates, a venture capital firm, from January 1994 until October 1997. Mr.
Daly was a general partner of TA Associates from July 1984 to December 1993.
Burton S. Schwartz, M.D. has been a director of PRN since May 1998. Dr.
Schwartz has served as the president and medical director of Minnesota Oncology
Hematology, P.A., a medical oncology practice and affiliated physician group of
the PRN, since February 1995. Dr. Schwartz served as president and medical
director of Oncologic Consultants, P.A., a medical oncology practice, from
April 1992 until February 1995. Dr. Schwartz received his medical degree from
Meharry Medical College in 1968 and is a board certified medical oncologist.
Nancy G. Brinker has been a director of PRN since September 1994. Ms.
Brinker is the founder of the Susan G. Komen Breast Cancer Foundation, one of
the leading sponsors of breast cancer research and awareness programs in the
nation. Since February 1995, Ms. Brinker has been chief executive officer of In
Your Corner, Inc., a provider of health and wellness products and services. Ms.
Brinker served as an independent pharmaceutical consultant from 1992 to 1994.
She currently serves as a director of The Meditrust Companies.
John T. Casey has been Chairman of the Board and Chief Executive Officer of
PRN since October 1997. Mr. Casey has been active in health care leadership
roles for over 25 years. Mr. Casey served as president and chief operating
officer of American Medical International from 1991 until 1995, when that
company was acquired by Tenet Healthcare Corporation. Prior to 1991, Mr. Casey
served as chief executive officer of several large regional healthcare systems,
including Samaritan Health Services in Phoenix, Arizona; Methodist Health
Systems in Memphis, Tennessee; and Presbyterian/St. Luke' s Medical Center in
Denver, Colorado. From 1995 until joining the Company, Mr. Casey was chairman
and chief executive officer of InteCare LLC, an entrepreneurial venture. Mr.
Casey currently serves as a director of MedQuist Inc.
Stephen E. Jones, M.D. has been a director of PRN since November 1998. Dr.
Jones received his medical degree from Case Western Reserve School of Medicine
and post-doctoral training and education at Stanford University. Dr. Jones is a
member of the American Society of Clinical Oncology and the American Society of
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Hematology. Dr. Jones is a board certified medical oncologist and internist.
Dr. Jones was a founding partner of TOPA and has been a practicing physician
with TOPA since 1986. He was a professor of Medicine at the University of
Arizona College of Medicine from 1978 through 1985.
Boone Powell, Jr. has been a director of PRN since September 1994. Mr.
Powell has been the president and chief executive officer of Baylor Health Care
System and BUMC since 1980. Mr. Powell serves as an active member of Voluntary
Hospitals of America. He is a director of Abbott Laboratories and Comerica
Bank--Texas and is a fellow of the American College of Health Care Executives.
Meetings, Committees and Compensation
The AOR board of directors held five meetings in 1998. For 1998, directors
who were not employed by AOR received a fee of $3,500 per fiscal quarter plus
an additional $1,500 per meeting attended. In addition, each director who was
not employed by AOR received a grant of options to purchase 3,000 shares of AOR
common stock, except for James E. Dalton and Stanley M. Marks, M.D., who were
elected as directors of AOR for the first time during 1998, each of whom was
granted options to purchase 5,000 shares of AOR common stock. All such options
were granted pursuant to the 1993 Non-Employee Director Stock Option Plan. In
addition, each AOR director received an additional grant of options to purchase
1,000 shares of AOR common stock for each committee to which the director was
appointed. AOR also reimburses directors for their travel and out-of-pocket
expenses incurred in attending board or committee meetings. Each incumbent
director attended more than 75% of all meetings of the entire AOR board of
directors.
During 1998, the AOR board of directors had an audit committee and a
compensation committee. The merger agreement provides that subject to, and upon
consummation of the merger, the combined company's board of directors will also
have an executive committee and a nominating committee.
The audit committee reviews external and internal audit plans and
activities, annual financial statements, and the system of internal financial
controls, and approves all significant fees for audit, audit-related and non-
audit services provided by independent accountants. During 1998, and as of the
date of this joint proxy statement and prospectus, the audit committee members
were Richard B. Mayor (Chairman), James E. Dalton and Robert A. Ortenzio. The
merger agreement provides that subject to, and effective upon, consummation of
the merger, the audit committee of the combined company will be comprised of
Richard B. Mayor, James E. Dalton, Nancy G. Brinker and John T. Casey. The
audit committee met four times in 1998.
The compensation committee reviews and recommends compensation for AOR
officers and employees and recommends to the board of directors changes in
AOR's incentive compensation plans. The compensation committee met four times
in 1998. During 1998, and as of the date of this joint proxy statement and
prospectus, the compensation committee members were Russell L. Carson
(Chairman), James E. Dalton and Robert A. Ortenzio. The merger agreement
provides that subject to, and effective upon, consummation of the merger, the
compensation committee of the combined company will be comprised of Russell L.
Carson, Robert A. Ortenzio and Boone Powell, Jr. Each audit and compensation
committee member attended all meetings of such committee held during 1998.
The executive committee will have all of the powers of the board of
directors other than the power to (a) amend the bylaws or (b) vote on any
matter which under Delaware corporate law requires stockholder approval.
Effective upon consummation of the merger, the members of the Executive
Committee of the Board will be R. Dale Ross, Russell L. Carson, Richard B.
Mayor, Boone Powell, Jr. and John T. Casey. The nominating committee will have
the power to nominate directors to be voted upon by stockholders and to fill
all vacancies on the board of directors or any committee. Effective upon
completion of the merger, the members of the nominating committee will be
Russell L. Carson, R. Dale Ross, James E. Dalton, Richard B. Mayor and Boone
Powell, Jr.
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PROPOSAL 6: APPROVAL OF AMENDMENT TO 1993 KEY EMPLOYEE STOCK OPTION PLAN
AOR's board of directors has adopted, subject to approval by the
stockholders of AOR, an amendment to AOR's 1993 Key Employee Stock Option Plan
(as amended, the "Key Employee Plan") amending the Key Employee Plan to
increase the number of shares available for grants under the Key Employee Plan
from 10% of AOR's outstanding common stock (including, for purposes of such
calculation, shares to be issued to affiliated physicians at specified future
dates) to 12% of AOR's outstanding common stock (including, for purposes of
such calculation, shares to be issued to affiliated physicians at specified
future dates). As of May 10, 1999, AOR had 35,627,773 shares of common stock
issued and outstanding, and had agreed to deliver 13,639,990 shares of AOR
common stock to its affiliated physicians at certain future dates for no
additional consideration. Thus, if this amendment to the Key Employee Plan is
approved, then as of May 10, 1999, 5,912,132 shares of AOR common stock would
be reserved for grants of options and, if the merger is consummated, upon
consummation of the merger approximately 12.2 million shares of the combined
company would be reserved for grants of options. As of May 10, 1999, options to
purchase 4,381,958 shares of AOR common stock had been granted (exclusive of
cancellations) under the Key Employee Plan, all of which are nonqualified
options, and 3,871,394 of which were outstanding with a weighted average
exercise price of $10.19.
Text of the Amendment
The text of the amendment is as follows:
Capitalized terms not otherwise defined in this Amendment to the Key
Employee Plan have the meanings assigned thereto in the Key Employee Plan.
The Key Employee Plan is hereby amended as follows:
"The first sentence of Section 5 of the Key Employee Plan is hereby
amended to read in its entirety as follows:
"The number of shares of Common Stock available for Stock Options shall
equal 12% of the sum of the Company's outstanding Common Stock as of the
effective date of the Key Employee Plan plus the number of shares of Common
Stock issued by the Company after such effective date (including, solely
for determining the number of shares available for Stock Options, shares of
Common Stock agreed to be issued to physicians (or their affiliates) in
connection with such physicians' (or their affiliates') direct or indirect
agreement to enter into long-term management agreement with the Company (or
a subsidiary thereof)), provided, however, that the number of shares
available for Incentive Stock Options shall not exceed 375,888 shares; and
provided further, however, that all outstanding and previously exercised
Stock Options shall be applied against the number of shares of Common Stock
available under the Plan."
Description of the Key Employee Plan
The following is a description of the Key Employee Plan, as amended by the
proposed amendment. The Key Employee Plan was adopted by AOR's board of
directors in March 1993 and approved by AOR's stockholders in February 1994.
The Key Employee Plan provides for the grant of nonqualified stock options and
incentive stock options to employees (including officers who may be members of
the board of directors) of AOR and its subsidiaries, with the number of shares
of AOR common stock available for such stock options equal to 12% of the shares
of AOR common stock outstanding (including shares to be issued to affiliated
physicians at specified future dates) at the time of any such grant.
The Key Employee Plan is administered by AOR's compensation committee. The
compensation committee is authorized, subject to the terms of the Key Employee
Plan, to adopt rules and regulations for carrying out the Key Employee Plan, to
select eligible participants and to determine all appropriate terms and
conditions of the grant of options thereunder, with the decisions of AOR's
compensation committee binding on AOR and the participants under the Key
Employee Plan. The Key Employee Plan provides for the grant of both Incentive
Stock Options as defined in the Internal Revenue Code, and non-qualified stock
options to acquire shares of AOR common stock. Incentive Stock Options may not
be granted with an exercise prices of
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less than 100% of the fair market value per share of AOR common stock at the
date of grant, and non-qualified options may not be granted with an exercise
price of less than 85% of the fair market value per share of AOR common stock
at the date of grant. The exercise price of an option may be paid in cash, in
shares of AOR common stock or in a combination thereof. Vested options may be
exercised during the participant's continued employment with AOR and for a
period expiring on the earliest of (i) the term fixed by the compensation
committee (which term shall not exceed ten years from the grant date), (ii) if
the compensation committee fails to fix a term, ten years from the grant date
or (iii) 30 days following termination of such employment, unless the
participant's employment is terminated for cause, in which case vested options
terminate at 12:01 a.m. on the date of the participant's termination, or by
reason of death, disability or retirement. If the participant's employment is
terminated by reason of death, disability or retirement, any vested
nonqualified options expire on the earliest of (i) the term fixed by the
compensation committee (which term shall not exceed ten years from the grant
date), (ii) if the compensation committee fails to fix a term, ten years from
the grant date or (iii) one year after such termination of employment as a
result of death, disability or retirement. If the participant's employment is
terminated by reason of death, disability or retirement, any Incentive Stock
Options terminate on the same schedule as nonqualified options, except such
options terminate three months after death, disability or retirement instead of
one year. In the event of a participant's death or disability, 50% of all
shares covered by stock options that are not vested as of the date of such
event may be exercised fully and immediately without regard to vesting
schedules for the terms described above.
Certain Federal Income Tax Consequences
The Key Employee Plan is not a qualified plan under Section 401(a) of the
Internal Revenue Code. To date, all options granted under the Key Employee Plan
are "nonstatutory stock options" and not "restricted," "qualified" or
"incentive" stock options, nor is the Key Employee Plan an "employee stock
purchase plan," under Sections 422 through 424 of the Internal Revenue Code.
Recipients of such nonqualified options under the Key Employee Plan recognize
no income for federal income tax purposes when options are granted, but
recognize ordinary income on the date of exercise to the extent that the fair
market value of AOR common stock on such date exceeds the exercise price of the
options.
AOR is authorized to withhold any tax required to be withheld from the
amount considered as ordinary income to the recipient of shares upon exercise
of such nonqualified options issued under the Key Employee Plan. In the event
that funds are not otherwise available to cover any required withholding tax,
the recipient will be required to provide such funds before the shares are
issued. AOR will ordinarily be entitled to a deduction equivalent to the amount
of ordinary income recognized by optionees.
Vote Required for Approval
Approval of the proposed amendment to the Key Employee Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of AOR
common stock.
Recommendation of the Board of Directors
THE AOR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
THE AMENDMENT TO AOR'S 1993 KEY EMPLOYEE STOCK OPTION PLAN. DULY EXECUTED
PROXIES WILL BE SO VOTED UNLESS A CONTRARY INDICATION IS MADE.
PROPOSAL 7: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP was engaged to audit AOR's 1998
financial statements. The board of directors of AOR proposes to continue the
services of this firm as independent accountants to audit AOR's financial
statements for 1999. If the appointment of PricewaterhouseCoopers LLP is
ratified by the stockholders, the firm will audit the financial statements of
AOR and its subsidiaries for the current fiscal year and perform other
appropriate accounting services as requested. PricewaterhouseCoopers LLP has
advised
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AOR that no member of the firm has any financial interest, direct or indirect,
in AOR or any of its subsidiaries in any capacity other than that of
accountants. Representatives of PricewaterhouseCoopers LLP will be present at
AOR's annual meeting and will be available to answer appropriate questions from
stockholders.
Vote Required for Approval
The affirmative vote of a majority of the shares of AOR common stock present
or represented by proxy and entitled to vote at AOR's annual meeting is
required for the ratification of the appointment of PricewaterhouseCoopers LLP
as independent accountants to audit AOR's financial statements for 1999.
Recommendation of the Board of Directors
THE AOR BOARD OF DIRECTORS RECOMMENDS THAT AOR STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS TO AUDIT AOR'S FINANCIAL STATEMENTS FOR 1999.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth (i) the aggregate amount of remuneration paid
by AOR for the three fiscal years ended December 31, 1998 to the Chief
Executive Officer and the four most highly compensated executive officers other
than the Chief Executive Officer, (ii) the number of shares of AOR common stock
that are subject to options granted to such individuals during the last fiscal
year and the hypothetical value thereof assuming specified annual rates of AOR
common stock price appreciation, and (iii) the amount realized upon the
exercise of stock options during the last fiscal year and the value at the end
of the last fiscal year of all stock options held by such individuals.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
---------------- ------------
Securities
Fiscal Underlying
Year Salary Bonus Options
Name and Principal Position ------ ------ ------- ------------
<S> <C> <C> <C> <C>
R. Dale Ross.............................. 1998 $438,900 $ 0 100,000
Chairman of the Board, Chief Executive
Officer 1997 $399,000 $ 0 200,000
and Director 1996 $350,000 $ 0 0
Lloyd K. Everson, M.D..................... 1998 $368,362 $ 0 75,000
President and Director 1997 $334,875 $ 0 175,000
1996 $293,750 $ 0 0
L. Fred Pounds............................ 1998 $302,485 $ 0 50,000
Vice President of Finance, Treasurer and
Chief 1997 $274,986 $ 0 100,000
Financial Officer 1996 $239,119 $ 0 0
David S. Chernow.......................... 1998 $220,000 $ 0 50,000
Chief Development Officer 1997 $200,000 $ 0 100,000
1996 $135,000 $42,800 60,000
R. Allen Pittman.......................... 1998 $166,676 $40,000 50,000
Vice President of Corporate Services 1997 $151,524 $ 0 5,000
1996 $142,947 $43,565 44,000
</TABLE>
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OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------- ---------------------------
Number of % of Total Exercise
Securities Options Price
Underlying Granted to Per
Options Employees in Share Expiration
Name Granted Fiscal Year (1) Date 5% 10%
- ------------------------ ---------- ------------ -------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
R. Dale Ross............ 100,000 11.0% $14.61 5/14/08 $ 918,820 $ 2,328,460
Lloyd K. Everson, M.D... 75,000 8.3% $14.61 5/14/08 $ 689,115 $ 1,746,345
L. Fred Pounds.......... 50,000 5.5% $14.61 5/14/08 $ 459,410 $ 1,164,230
David S. Chernow........ 50,000 5.5% $14.61 5/14/08 $ 459,410 $ 1,164,230
R. Allen Pittman........ 50,000 5.5% $14.61 5/14/08 $ 459,410 $ 1,164,230
</TABLE>
- --------
(1) The exercise price per share for each option granted in 1998 is the market
value of AOR's common stock as of the date such option was granted, as
determined in accordance with the applicable stock option plan.
1998 OPTION EXERCISES AND DECEMBER 31, 1998 OPTION VALUE TABLE
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal Year In-the-Money Options at
Acquired End Fiscal Year End(1)
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Dale Ross............ 400,000 $5,974,953 1,858,428 260,000 $19,716,423 $ 0
Lloyd K. Everson, M.D... 200,000 $2,475,000 332,864 215,000 $ 2,927,120 $ 0
L. Fred Pounds.......... 115,000 $1,381,575 257,973 233,439 $ 2,640,832 $1,107,528
David S. Chernow........ 35,000 $ 319,212 24,242 174,000 $ 118,269 $ 611,510
R. Allen Pittman........ 20,000 $ 283,300 30,600 88,400 $ 230,849 $ 251,904
</TABLE>
- --------
(1) Based upon a closing price of AOR's common stock on December 31, 1998, as
reported by The Nasdaq Stock Market, of $14.56 per share.
401(k) Plan
Effective January 1, 1994, AOR adopted a 401(k) plan covering substantially
all employees who have completed at least 1,000 hours of service. AOR's 401(k)
Plan is administered by AOR and permits covered employees to contribute up to
15% of their annual compensation up to the maximum legally allowable
contribution per year, as adjusted for inflation, through salary reduction on a
pre-tax basis in accordance with Section 401(k) of the Internal Revenue Code.
AOR contributions to AOR's 401(k) Plan are permitted, but are not required. No
contributions have been made by AOR to date.
Indemnification of Officers and Directors
AOR's certificate of incorporation provides that no director of AOR shall be
personally liable to AOR or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to AOR or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) in respect of certain unlawful dividend payments or
stock redemptions or repurchases as provided in Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit. The effect of these provisions is to
eliminate the rights of AOR and its stockholders (through stockholders'
derivative suits on behalf of AOR) to recover monetary damages against a
director for breach of fiduciary duty as a director (including breaches
resulting from grossly negligent behavior), except in the situations described
above. The SEC has taken the position that the provision will have no effect on
claims arising under federal securities laws.
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AOR's bylaws, as currently in effect or as in effect after the merger,
provide that AOR will indemnify its directors and officers to the fullest
extent permissible under Delaware law. These indemnification provisions require
AOR to indemnify such persons against certain liabilities and expenses to which
they may become subject by reason of their service as a director or officer of
AOR or any of its affiliated enterprises. The provisions also set forth certain
procedures, including the advancement of expenses, that apply in the event of a
claim for indemnification.
Compensation Committee Report on Executive Compensation
In 1998, the compensation committee was comprised of Russell L. Carson
(Chairman), Robert A. Ortenzio and, starting May 1998, James E. Dalton, none of
whom was employed by AOR.
Committee Charter. The committee's charter provides that the committee is
responsible for ensuring that AOR is able to attract and retain qualified
people to serve as officers and in key management positions through the
effective use of competitive compensation, benefits and management development
programs. The compensation committee's responsibilities include ensuring that
executive compensation is linked to stockholder value and is consistent with
AOR's business strategy and performance. Each member of the compensation
committee must be a "non-employee director," as defined under rules adopted
under Section 16 of the Securities Exchange Act of 1934, as amended, and must
be an "outside director," as defined under Section 162(m) of the Internal
Revenue Code. Committee members and the Chairman serve at the pleasure of the
AOR board of directors.
The compensation committee is expected to counsel the chief executive
officer regarding employment and compensation matters; develop, review and
evaluate policies and make recommendations with respect to benefit plans and
programs or other compensation arrangements; review and approve discretionary
grants and the terms thereof under AOR's stock option plans and report to
stockholders in the proxy statement on AOR's compensation policies. In carrying
out its duties, the committee may retain outside consultants, although it did
not do so in 1998. The committee reports and makes recommendations to AOR's
board of directors.
Compensation Policy for Officers. AOR hopes to select and retain high-
quality, talented individuals to serve as officers and employees of AOR. To
that end, the compensation offered by AOR is designed to be competitive and to
reward superior individual and company performance with superior levels of
compensation. In determining its compensation packages, AOR seeks to compensate
its executive officers at a level that is competitive with companies in its
peer group in similar geographic locations. AOR believes that its total
compensation packages are in the middle of the range of such group, although
AOR has historically placed a greater emphasis on stock-based compensation than
some of its peer group companies. The principal components of the executive
compensation program are base salary, cash bonus compensation and stock-based,
longer-term incentives. Base salary levels are intended to be competitive and
are based upon the executive's background, qualifications and job performance
at AOR. Cash bonuses are awarded based upon achievement of individual and AOR
goals. The primary basis for awarding cash bonuses is the achievement of
certain earnings per share goals for each year. Bonuses in respect of any given
year are generally paid during the subsequent year. AOR met its earnings goals
during 1998.
Stock-based incentives are used to reward officers and to motivate them to
achieve AOR's longer-term goals. AOR has generally placed greater emphasis on
stock-based incentives than on cash bonuses in its compensation strategy for
executive officers and will continue to do so. AOR and individual performance
results, primarily AOR's achieving certain earnings per share targets, are
considered when determining discretionary stock-based incentive awards,
although no pre-determined performance criteria are utilized. During the fiscal
year ended December 31, 1998, the committee awarded stock options to selected
officers and key employees under the 1993 Key Employee Stock Option Plan. Stock
options have an exercise price equal to at least 85% of the market price on the
date of grant and vest over five years.
By relying on long-term stock-based compensation, AOR puts a significant
portion of each executive officer's total compensation at risk, based upon the
financial performance of AOR. Furthermore, each
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executive's personal net worth may increase with any long-term appreciation of
AOR's stock. In this manner, AOR seeks to align the long-term interests of its
executive officers with the interest of AOR and its stockholders.
Compensation of the Chief Executive Officer. Compensation of the Chief
Executive Officer is intended to be competitive with compensation paid by
companies in AOR's peer group located in similar geographic locations. The
Chief Executive Officer's compensation is based primarily on AOR's achieving
certain earnings targets for each fiscal year. During 1998, AOR satisfied its
earnings target. In addition, AOR's performance is measured by, among other
things, corporate net earnings, revenues and a comparison to AOR's peer group.
Measurements used to evaluate the Chief Executive Officer include, in addition
to earnings, performance, stock price performance and development of sound
strategic, operating and expansion plans.
For 1999 the committee intends to continue its present performance-based
compensation strategy. The committee's compensation philosophy will continue to
reward performance for its executive officers and broad-based employees tied to
both corporate goals and individual benchmarks.
Omnibus Budget Reconciliation Act of 1993. The Omnibus Budget Reconciliation
Act of 1993 (the "Budget Act") imposes a limit of $1,000,000, with certain
exceptions, that a publicly held corporation may deduct in any year for the
compensation paid with respect to each of its five most highly compensated
officers. The committee intends to try to comply with the provisions of the
Budget Act that would preserve the deductibility of executive compensation
payments to the greatest extent possible under AOR's compensation policy.
Russell L. Carson, Chairman
Robert A. Ortenzio
James E. Dalton
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Performance Graph. The following performance graph compares the performance
of AOR common stock to the Nasdaq Composite Index for the period commencing
June 13, 1995, and ending December 31, 1998. The graph assumes that $100 was
invested on June 13, 1995, in AOR common stock and in each index and that all
dividends were reinvested.
Comparison of Cumulative Return
[Graph appears here]
<TABLE>
<CAPTION>
June
13, December 31, December 31, December 31, December 31,
1995 1995 1996 1997 1998
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
AOR(1).................. $100.00 $173.66 $ 73.21 $114.29 $104.02
Nasdaq Stock Market
Index.................. $100.00 $113.41 $139.49 $171.17 $245.28
Nasdaq Health Services
Index(2)............... $100.00 $134.68 $134.75 $137.18 $112.44
</TABLE>
- --------
(1) Total return for AOR assumes a purchase price on June 13, 1995 of $14.00,
which was the closing price of the AOR common stock, as reported on The
Nasdaq Stock Market, on such date. The price to the public in AOR's initial
public offering on such date was $10.50. All stock prices take into account
AOR's 2-for-1 stock split which took effect in June 1996.
(2) The Nasdaq Health Services Index is comprised of all U.S. and Canadian
healthcare service companies listed on The Nasdaq Stock Market.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions with AOR
AOR does not believe that any of the transactions described below were made
on terms less favorable to AOR than those that would have been available from
unaffiliated parties and does not anticipate entering into transactions with
affiliated parties in the future on terms less favorable than those that would
be available from unaffiliated parties.
Dr. Fink, a director of AOR, is a practicing physician with Hematology
Oncology Associates ("HOA"), a physician group affiliated with AOR since
November 1992. During 1998, AOR recognized revenue of approximately $18,920,000
from HOA. In addition, AOR leases office space from an entity affiliated with
Dr. Fink. Payments under this lease were approximately $534,000 in 1998.
Dr. Marks, a director of AOR, is a practicing physician with Oncology-
Hematology Associates, a physician group affiliated with AOR since April 1995.
During 1998, AOR recognized revenue of approximately $30,940,000 from Oncology-
Hematology Associates.
Dr. Murali, a director of AOR, is a practicing physician with Oncology and
Hematology Associates, Inc., a physician group affiliated with the Company
since April 1994. During fiscal 1998, AOR recognized revenue of approximately
$16,940,000 from Oncology and Hematology Associates, Inc.
Dr. Rogoff, a director of AOR, is a practicing physician with Southwestern
Radiation Oncology, Ltd., a physician group affiliated with AOR since January
1995. During fiscal 1998, AOR recognized revenue of $5,851,000 from
Southwestern Radiation Oncology Ltd. In addition, AOR leases office space from
an entity affiliated with Dr. Rogoff. Payments under this lease were
approximately $215,000 in 1998.
Richard B. Mayor, a director of AOR, is Of Counsel to Mayor, Day, Caldwell &
Keeton, L.L.P., AOR's principal outside legal counsel.
Certain Relationships and Related Transactions with PRN
PRN does not believe that any of the transactions described below were made
on terms less favorable to PRN than those that would have been available from
unaffiliated parties and does not anticipate entering into transactions with
affiliated parties in the future on terms less favorable than those that would
be available from unaffiliated parties.
PRN and Texas Oncology, P.A. are parties to a Service Agreement pursuant to
which PRN provides Texas Oncology, P.A. with facilities, equipment, non-
physician personnel, and administrative, management, and non-medical advisory
services, as well as services relating to the purchasing and administering of
supplies. In 1998, Texas Oncology, P.A. paid PRN an aggregate of approximately
$78.0 million pursuant to the Texas Oncology, P.A. Service Agreement. Dr.
Jones, who will be a director of the combined company upon completion of the
merger, and Dr. Bailes, who will be an Executive Vice President of the combined
company upon completion of the merger, are employed by Texas Oncology, P.A.
Texas Oncology, P.A. beneficially owns approximately 16.9% of the outstanding
PRN common stock. At December 31, 1998, Texas Oncology, P.A. was indebted to
PRN in the aggregate amount of approximately $7.0 million. This indebtedness
was incurred in 1996 and 1997 when PRN advanced working capital to Texas
Oncology, P.A. for various uses, including the development of new markets and
physician salaries and bonuses. This indebtedness bears interest at a rate
negotiated by PRN and Texas Oncology, P.A. that approximates the published
prime lending rate. Effective November 1, 1998, PRN and Texas Oncology, P.A.
entered into a Second Amended and Restated Service Agreement. In consideration
for entering into the amended agreement, PRN paid Texas Oncology, P.A. $1.5
million and is obligated to pay Texas Oncology, P.A. $7.5 million on or before
June 15, 1999.
PRN leases facilities from affiliates of Baylor University Medical Center
("BUMC"). Additionally, affiliates of BUMC provide PRN various services,
including telecommunications and maintenance services.
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Mr. Powell, a director of PRN (who will become a director of the combined
company), is president and chief executive officer of BUMC. In 1998, payments
by PRN to BUMC totalled an aggregate of approximately $3.9 million for these
services.
PRN and Minnesota Oncology Hematology, P.A. ("Minnesota Oncology") entered
into a Service Agreement effective July 1, 1996. Dr. Schwartz, a director of
PRN (who will become a director of the combined company), is president and
medical director of Minnesota Oncology. Pursuant to that service agreement, PRN
provides Minnesota Oncology with offices, facilities, equipment, non-physician
personnel, and administrative, management, and non-medical advisory services,
as well as services relating to the purchasing and administering of supplies.
During 1998, Minnesota Oncology paid PRN an aggregate of approximately $5.1
million pursuant to their service agreement.
As part of the consideration for Minnesota Oncology entering into the
Minnesota Service Agreement, PRN is required to make quarterly payments of
$463,996 to Minnesota Oncology through July 1, 2000. During 1998, PRN paid
Minnesota Oncology an aggregate of $1,855,984 pursuant to such quarterly
payments. In addition, PRN is required to issue a prescribed number of shares
of PRN common stock (which will convert, based on the exchange ratio of 0.94,
into the right to receive AOR common stock) to Minnesota Oncology on July 1 of
each year through July 1, 2001. During 1998, PRN issued 107,152 shares of
common stock to Minnesota Oncology pursuant to such yearly issuances.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the federal securities laws, AOR's directors, executive officers and
any person holding more than ten percent of the outstanding AOR common stock
are required to report their beneficial ownership of AOR common stock to AOR
and the SEC. Specific due dates for these reports have been established by
regulation, and AOR is required to report any failure to file by these dates
during 1998. As of the date of this joint proxy statement and prospectus, AOR
believes that all directors, officers and ten percent holders are current in
their filings with respect to 1998. In making these statements, AOR has relied
on the written representations of its directors, officers and ten percent
holders and copies of reports that they have filed with the SEC.
INDEPENDENT ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP, AOR's independent
accountants, are expected to be present at the AOR annual meeting and will have
the opportunity to make a statement if they so desire. Such representatives are
also expected to be available to respond to appropriate questions.
Representatives of Arthur Andersen LLP, PRN's independent accountants, are
expected to be present at the PRN special meeting and will have the opportunity
to make a statement if they so desire. Such representatives are also expected
to be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the AOR common stock to be issued in connection with the
merger will be passed upon by Mayor, Day, Caldwell & Keeton, L.L.P., Houston,
Texas. Certain tax consequences of the merger will be passed upon for PRN by
Bass, Berry & Sims PLC, Nashville, Tennessee.
EXPERTS
The consolidated financial statements for AOR incorporated in this joint
proxy statement and prospectus by reference to the Annual Report on Form 10-K,
as amended, for the year ended December 31, 1998 have been incorporated herein
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing. The prospective financial information
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included or referred to in this document has been prepared by and is the
responsibility of the management of AOR and PRN, respectively.
PricewaterhouseCoopers LLP has neither examined nor compiled the accompanying
prospective financial information, and accordingly, PricewaterhouseCoopers LLP
does not express an opinion or any other form of assurance with respect
thereto. The PricewaterhouseCoopers LLP report incorporated by reference into
this document relates to the historical financial statements of AOR; it does
not extend to the prospective financial information and should not be read to
do so.
The consolidated financial statements of PRN appearing in PRN's Annual
Report on Form 10-K, as amended, for the year ended December 31, 1998
incorporated by reference in this joint proxy statement and prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports and are included therein in reliance upon the
authority of such firm as experts in accounting and auditing in giving said
reports.
PROPOSALS OF STOCKHOLDERS FOR ANNUAL MEETING
AOR Stockholders
The board of directors of AOR, or if the merger is consummated, of the
combined company will consider proposals of stockholders intended to be
presented for action at the combined company's 2000 annual meeting of
stockholders. A stockholder proposal must be submitted in writing and be
received at AOR's or the combined company's principal executive offices, 16825
Northchase Drive, Suite 1300, Houston, Texas 77060, no later than January 11,
2000, to be considered for inclusion in the proxy statement and form of proxy
relating to the 2000 annual meeting of stockholders. Submission of a
stockholder proposal does not assure inclusion in the proxy statement or form
of proxy because proposals must meet certain SEC rules and AOR bylaw
requirements.
PRN Stockholders
A proper proposal submitted by a stockholder in accordance with applicable
rules and regulations must have been received at PRN's executive offices by
December 15, 1998 to be included in PRN's 1999 Proxy Statement and form of
proxy relating to PRN's 1999 Annual Meeting of Stockholders. If a proper
proposal submitted by a stockholder in accordance with applicable rules and
regulations is received at PRN's executive offices later than February 27,
1999, the proxies of PRN's management with respect to PRN's 1999 annual meeting
of stockholders will have discretionary voting authority with respect to such
stockholder proposal. PRN does not anticipate having a 1999 annual meeting of
stockholders if the merger is consummated.
OTHER MATTERS
As of the date of this joint proxy statement and prospectus, the board of
directors of each of AOR and PRN knows of no other matters that will be
presented for consideration at the AOR annual meeting or the PRN special
meeting other than as described in the joint proxy statement and prospectus. If
any other matters shall properly come before either meeting or an adjournment
or postponement thereof and be voted upon, the enclosed proxies will be deemed
to confer discretionary authority on the individuals named as proxies therein
to vote the shares represented by such proxies as to any such matters. The
persons named as proxies intend to vote or not vote in accordance with the
recommendation of the respective managements of AOR and PRN.
104
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
Among
AMERICAN ONCOLOGY RESOURCES, INC.
DIAGNOSTIC ACQUISITION, INC.
And
PHYSICIAN RELIANCE NETWORK, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. THE MERGER.................................................... A-1
Section 1.1.The Merger................................................. A-1
Section 1.2.Conversion of Capital Stock................................ A-2
Section 1.3.Exchange of Certificates................................... A-2
Section 1.4.Time and Place of Closing.................................. A-4
ARTICLE II. OTHER MATTERS RELATING TO CORPORATE ORGANIZATION AND
GOVERNANCE............................................................... A-4
Section 2.1.Actions to be Taken........................................ A-4
Section 2.2.Corporate Headquarters..................................... A-5
Section 2.3.The Surviving Corporation.................................. A-5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-6
Section 3.1.Corporate Existence and Power.............................. A-6
Section 3.2.Corporate Authorization.................................... A-6
Section 3.3.Subsidiaries............................................... A-6
Section 3.4.Affiliated Physician Groups................................ A-7
Section 3.5.Governmental Authorization................................. A-7
Section 3.6.Non-Contravention.......................................... A-8
Section 3.7.Capitalization............................................. A-8
Section 3.8.SEC Reports and Financial Statements....................... A-9
Section 3.9.Absence of Certain Changes or Events....................... A-9
Section 3.10.Disclosure Documents...................................... A-10
Section 3.11.Litigation................................................ A-10
Section 3.12.Contracts................................................. A-10
Section 3.13.Properties and Assets..................................... A-10
Section 3.14.Taxes..................................................... A-11
Section 3.15.Employee Benefit Plans; ERISA............................. A-11
Section 3.16.Accounts Receivable....................................... A-12
Section 3.17.Labor Matters............................................. A-13
Section 3.18.Compliance with Laws...................................... A-13
Section 3.19.Finders' Fees............................................. A-13
Section 3.20.Opinion of Financial Advisor.............................. A-13
Section 3.21.Accounting Matters........................................ A-13
Section 3.22.Company Rights Plan....................................... A-13
Section 3.23.Licenses; Approvals....................................... A-13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT..................... A-14
Section 4.1.Corporate Existence and Power.............................. A-14
Section 4.2.Corporate Authorization.................................... A-14
Section 4.3.Subsidiaries............................................... A-14
Section 4.4.Affiliated Physician Groups................................ A-15
Section 4.5.Governmental Authorization................................. A-15
Section 4.6.Non-Contravention.......................................... A-16
Section 4.7.Capitalization............................................. A-16
Section 4.8.Organization of Merger Sub................................. A-17
Section 4.9.No Prior Activities........................................ A-17
Section 4.10.SEC Reports and Financial Statements...................... A-17
Section 4.11.Absence of Certain Changes or Events...................... A-17
Section 4.12.Disclosure Documents...................................... A-18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Section 4.13.Litigation................................................. A-18
Section 4.14.Contracts.................................................. A-18
Section 4.15.Properties and Assets...................................... A-18
Section 4.16.Taxes...................................................... A-19
Section 4.17.Employee Benefit Plans; ERISA.............................. A-20
Section 4.18.Accounts Receivable........................................ A-20
Section 4.19.Labor Matters.............................................. A-21
Section 4.20.Compliance with Laws....................................... A-21
Section 4.21.Finders' Fees.............................................. A-21
Section 4.22.Opinion of Financial Advisor............................... A-21
Section 4.23.Accounting Matters......................................... A-21
Section 4.24.Parent Rights Plan......................................... A-21
Section 4.25.Licenses; Approvals........................................ A-21
ARTICLE V. COVENANTS OF THE COMPANY....................................... A-22
Section 5.1.Conduct of Business of the Company Pending the Effective
Time................................................................... A-22
Section 5.2.Access to Financial and Operational Information............. A-23
Section 5.3.Notices of Certain Events................................... A-24
Section 5.4.Letter of Company's Accountants............................. A-24
Section 5.5.Opinion of Financial Advisor................................ A-24
ARTICLE VI. COVENANTS OF PARENT........................................... A-24
Section 6.1.Conduct of Business of Parent Pending the Effective Time.... A-24
Section 6.2.Access to Financial and Operational Information............. A-26
Section 6.3.Notices of Certain Events................................... A-26
Section 6.4.Letter of Parent's Accountants.............................. A-26
Section 6.5.Opinion of Financial Advisor................................ A-27
Section 6.6.Quotation on NMS............................................ A-27
Section 6.7.Employment Offers........................................... A-27
ARTICLE VII. COVENANTS OF PARENT AND THE COMPANY.......................... A-27
Section 7.1.Advise of Certain Changes................................... A-27
Section 7.2.Agreement to Cooperate; Further Assurances.................. A-27
Section 7.3.No Solicitation............................................. A-28
Section 7.4.Joint Proxy Statement; Registration Statement............... A-28
Section 7.5.Stockholders' Meetings...................................... A-29
Section 7.6.Confidential Information.................................... A-29
Section 7.7.Communications.............................................. A-29
Section 7.8.Stock Option Plans and Delayed Delivery Shares.............. A-29
Section 7.9.Registration of Company Stock Option Plans.................. A-30
Section 7.10.Obligations of Merger Sub.................................. A-30
Section 7.12.Indemnification and Insurance.............................. A-30
Section 7.13.Supplemental Disclosure Schedules.......................... A-31
Section 7.14.New Name for Parent........................................ A-31
Section 7.15.Affiliates................................................. A-31
Section 7.16.Severance Payments......................................... A-31
ARTICLE VIII. CONDITIONS OF THE MERGER.................................... A-31
Section 8.1.Conditions to Obligations of Parent and Merger Sub.......... A-31
Section 8.2.Conditions to Obligations of the Company.................... A-32
Section 8.3.Conditions to Obligations of Each Party..................... A-33
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE IX. TERMINATION OF AGREEMENT....................................... A-33
Section 9.1.Termination.................................................. A-33
Section 9.2.Certain Actions Prior to Termination......................... A-35
Section 9.3.Effect of Termination........................................ A-35
Section 9.4.Termination Fee.............................................. A-35
ARTICLE X. MISCELLANEOUS................................................... A-36
Section 10.1 Further Assurances.......................................... A-36
Section 10.2 Survival.................................................... A-36
Section 10.3 Notices..................................................... A-36
Section 10.4 Governing Laws and Consent to Jurisdiction.................. A-36
Section 10.5 Binding Upon Successors and Assigns; Assignment............. A-37
Section 10.6 Severability................................................ A-37
Section 10.7 Entire Agreement; No Third Party Beneficiaries.............. A-37
Section 10.8 Other Remedies.............................................. A-37
Section 10.9 Amendment and Waivers....................................... A-37
Section 10.10 Disclosure Schedules....................................... A-37
Section 10.11 No Waiver.................................................. A-37
Section 10.12 Construction of Agreement.................................. A-37
Section 10.13 Counterparts............................................... A-38
</TABLE>
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
Schedules
Company Disclosure Schedule
Parent Disclosure Schedule
iii
<PAGE>
DEFINITIONS
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
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)
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
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
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)
</TABLE>
v
<PAGE>
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 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."
A-1
<PAGE>
(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, 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
A-2
<PAGE>
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.
(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
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<PAGE>
the Effective Time under escheat 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:
<TABLE>
<CAPTION>
Name Class
---- -----
<S> <C>
J. Taylor Crandall.................................................. I
James E. Dalton..................................................... I
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 L. Carson................................................... III
Richard B. Mayor.................................................... III
Boone Powell, Jr.................................................... III
R. Dale Ross........................................................ III
</TABLE>
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<PAGE>
(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:
<TABLE>
<CAPTION>
Executive Compensation Nominating
Committee Committee Audit Committee Committee
--------- ------------------ ---------------- -----------------
<S> <C> <C> <C>
R. Dale Ross Russell L. Carson Richard B. Mayor Russell L. Carson
Russell L. 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:
<TABLE>
<CAPTION>
Title Name
----- ----
<S> <C>
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
</TABLE>
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.
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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 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.
(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
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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, 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
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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 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
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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
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.
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
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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.
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.
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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 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.
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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.
(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.
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(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, 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.
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
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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 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
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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 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;
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(d) compliance with any applicable requirements of the Securities Act;
(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:
(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
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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 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
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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 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.
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
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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, 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
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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
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
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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 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 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.
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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 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
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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;
(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
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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 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, 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
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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 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;
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(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 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 Registration Statement
shall become effective and
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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 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.
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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 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
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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
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 the foregoing assumption by Parent. Subject to
consummation of the Merger, Parent's board of directors has approved amendments
to Parent's 1993 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.
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(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.
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.
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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.
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 Corporation, taken as a whole, or adversely affect the
consummation of the transactions contemplated hereby.
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(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) 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.
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(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 1993 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).
(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),
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(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;
(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
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
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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 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.
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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:
(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,
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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 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.
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."
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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: /s/ R. Dale Ross
----------------------------------
Name: R. Dale Ross
Title: Chairman of the Board and
Chief Executive Officer
DIAGNOSTIC ACQUISITION, INC.
By: /s/ R. Dale Ross
----------------------------------
Name: R. Dale Ross
Title: Chairman of the Board and
Chief Executive Officer
PHYSICIAN RELIANCE NETWORK, INC.
By: /s/ John T. Casey
----------------------------------
Name: John T. Casey
Title: Chairman of the Board and
Chief Executive Officer
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APPENDIX B
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
A. 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).
B. 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) 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).
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(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.
(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
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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
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.
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(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 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,
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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 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.
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(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 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.
(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
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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
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.
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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 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
(2) such approval has been obtained and, in either event, any
requisite waiting period shall have passed.
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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.
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
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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: /s/ R. Dale Ross
----------------------------------
Name: R. Dale Ross
Title: Chairman of the Board and
Chief Executive Officer
Attest: /s/ Phillip H. Watts
-------------------------------
Name: Phillip H. Watts
Title: Vice President and General Counsel
PHYSICIAN RELIANCE NETWORK, INC.
By: /s/ John T. Casey
----------------------------------
Name: John T. Casey
Title: Chairman of the Board and
Chief Executive Officer
Attest: /s/ George P. McGinn
-------------------------------
Name: George P. McGinn
Title: Executive Vice President
B-10
<PAGE>
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
A. 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).
B. 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 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).
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<PAGE>
(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.
(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
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<PAGE>
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 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
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<PAGE>
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.
(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 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.
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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 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
B-15
<PAGE>
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 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.
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<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
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
B-17
<PAGE>
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 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
B-18
<PAGE>
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
(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.
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.
B-19
<PAGE>
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: /s/ R. Dale Ross
----------------------------------
Name: R. Dale Ross
Title: Chairman of the Board and
Chief Executive Officer
Attest: /s/ Phillip H. Watts
-------------------------------
Name: Phillip H. Watts
Title: Vice President and General Counsel
PHYSICIAN RELIANCE NETWORK, INC.
By: /s/ John T. Casey
----------------------------------
Name: John T. Casey
Title: Chairman of the Board and
Chief Executive Officer
Attest: /s/ George P. McGinn
-------------------------------
Name: George P. McGinn
Title: Executive Vice President
B-20
<PAGE>
APPENDIX C
May 10, 1999
Board of Directors
American Oncology Resources, Inc.
16825 Northchase Drive, Suite 1300
Houston, TX 77060
Dear Sirs:
BT Alex. Brown Incorporated ("BT Alex. Brown") has acted as financial
advisor to American Oncology Resources, Inc. ("AOR") in connection with the
proposed merger transaction involving AOR and Physician Reliance Network, Inc.
("PRN") pursuant to the Agreement and Plan of Merger dated as of December 11,
1998 (the "Merger Agreement") among AOR, Diagnostic Acquisition, Inc., a wholly
owned subsidiary of AOR ("Merger Sub"), and PRN. The Merger Agreement provides,
among other things, for the merger of Merger Sub with and into PRN ("the
Merger") pursuant to which PRN will become a wholly owned subsidiary of AOR. As
set forth more fully in the Merger Agreement, as a result of the Merger, each
outstanding share of the common stock, no par value per share, of PRN (the "PRN
Common Stock") will be converted into the right to receive 0.94 shares (the
"Exchange Ratio") of the common stock, par value $.01 per share, of AOR (the
"AOR Common Stock"). You have requested BT Alex. Brown's opinion as to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of AOR Common Stock.
In connection with BT Alex. Brown's role as financial advisor to AOR, and in
arriving at this opinion, BT Alex. Brown has reviewed certain publicly
available financial and other information concerning AOR and PRN and certain
internal analyses and other information furnished to or discussed with it by
AOR, PRN and their respective advisors. BT Alex. Brown has also held
discussions with members of the senior management of AOR and PRN regarding the
business and prospects of their respective companies and the joint prospects of
a combined company. In addition, BT Alex. Brown has (i) reviewed the reported
prices and trading activity for AOR Common Stock and PRN Common Stock, (ii)
compared certain financial and stock market information for AOR and PRN with
similar information for certain other companies whose securities are publicly
traded, (iii) reviewed the financial terms of certain recent business
combinations which it deemed comparable in whole or in part, (iv) reviewed the
terms of the Merger Agreement and certain related documents, and (v) performed
such other studies and analyses and considered such other factors as it deemed
appropriate.
BT Alex. Brown has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning AOR, PRN or the combined company,
including, without limitation, any financial information, forecasts or
projections considered in connection with the rendering of this opinion.
Accordingly, for purposes of this opinion, BT Alex. Brown has assumed and
relied upon the accuracy and completeness of all such information and BT Alex.
Brown has not conducted a physical inspection of any of the properties or
assets, and has not prepared or obtained any independent evaluation or
appraisal of any of the assets or liabilities, of AOR or PRN. With respect to
the financial forecasts and projections, including the analyses and forecasts
of certain synergies expected by AOR and PRN to be achieved as a result of the
Merger, made available to BT Alex. Brown and used in its analyses, BT Alex.
Brown has assumed that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgements of the management of AOR
or PRN, as the case may be, as to the matters covered thereby. In rendering its
opinion, BT Alex. Brown expresses no view as to the reasonableness of such
forecasts and projections, including the synergies, or the assumptions on which
they are based. This opinion is necessarily based upon economic, market and
other conditions as in effect on, and the information made available to BT
Alex. Brown as of, the date hereof.
C-1
<PAGE>
Board of Directors
American Oncology Resources, Inc.
May 10, 1999
Page 2
For purposes of rendering this opinion, BT Alex. Brown has assumed that, in
all respects material to its analysis, the representations and warranties of
AOR, PRN and Merger Sub contained in the Merger Agreement are true and correct,
AOR, PRN and Merger Sub will each perform all of the covenants and agreements
to be performed by it under the Merger Agreement and all conditions to the
obligations of each of AOR, PRN and Merger Sub to consummate the Merger will be
satisfied without any waiver thereof. BT Alex. Brown has also assumed that all
material governmental, regulatory or other approvals or consents required in
connection with the consummation of the Merger will be obtained and that in
connection with obtaining any necessary governmental, regulatory or other
approvals or consents, or any amendments, modifications or waivers to any
agreements, instruments or orders to which either AOR or PRN is a party or is
subject or by which it is bound, no limitations, restrictions or conditions
will be imposed or amendments, modifications or waivers made that would have a
material adverse effect on AOR or PRN or materially reduce the contemplated
benefits of the Merger to AOR. In addition, you have informed BT Alex. Brown,
and accordingly for purposes of rendering this opinion BT Alex. Brown has
assumed, that the Merger will qualify for pooling-of-interests accounting
treatment. BT Alex. Brown expresses no opinion as to the price at which the AOR
Common Stock or PRN Common Stock will trade at any time.
This opinion is addressed to, and is for the use and benefit of, the Board
of Directors of AOR and is not a recommendation to any shareholder as to how
such shareholder should vote with respect to matters relating to the proposed
Merger. This opinion is limited to the fairness, from a financial point of
view, of the Exchange Ratio to the holders of AOR Common Stock, and BT Alex.
Brown expresses no opinion as to the merits of the underlying decision by AOR
to engage in the Merger.
BT Alex. Brown, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. We have acted as financial
advisor to AOR in connection with the Merger and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Merger. BT Alex. Brown has in the past provided financial services to AOR
for which BT Alex. Brown has received customary compensation. BT Alex. Brown
maintains a market in AOR Common Stock and regularly publishes research reports
regarding the health care industry and the businesses and securities of AOR and
other publicly owned companies in the health care industry. In the ordinary
course of business, BT Alex. Brown and its affiliates may actively trade or
hold the securities and other instruments and obligations of AOR and PRN for
their own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities, instruments or
obligations.
Based upon and subject to the foregoing, it is BT Alex. Brown's opinion
that, as of the date of this letter, the Exchange Ratio is fair, from a
financial point of view, to the holders of AOR Common Stock.
Very truly yours,
/s/ BT Alex. Brown Incorporated
-------------------------------------
(BT Alex. Brown Incorporated)
C-2
<PAGE>
APPENDIX D
PERSONAL AND CONFIDENTIAL
May 10, 1999
Board of Directors
Physician Reliance Network, Inc
Two Lincoln Centre
5420 LBJ Freeway
Suite 900
Dallas, TX 75240
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, no par value per
share (the "Shares"), of Physician Reliance Network, Inc. (the "Company") of
the exchange ratio of 0.94 shares of Common Stock, par value $0.01 per share
("AORI Common Stock"), of American Oncology Resources, Inc. ("AORI") to be
received for each Share (the "Exchange Ratio") pursuant to the Agreement and
Plan of Merger, dated as of December 11, 1998, among AORI, Diagnostic
Acquisition, Inc., a wholly-owned subsidiary of AORI, and the Company (the
"Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1998, and Annual Reports to
Stockholders and Annual Reports on Form 10-K of AORI for the four years ended
December 31, 1998; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of the Company and AORI; certain other communications from
the Company and AORI to their respective stockholders; and certain internal
financial analyses and forecasts for the Company and AORI, prepared by their
respective managements, including certain cost savings and operating synergies
projected by the managements of the Company and AORI to result from the
transaction contemplated by the Agreement (the "Synergies"). We also have held
discussions with members of the senior management of the Company and AORI
regarding the strategic rationale for, and the potential benefits of, the
transaction contemplated by the Agreement and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, we have reviewed the reported price and trading
activity for the Shares and AORI Common Stock, compared certain financial and
stock market information for the Company and AORI with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations, and performed such
other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the internal financial forecasts prepared by the
managements of the Company and AORI, including the Synergies, have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the Company and AORI, and that such Synergies will
be realized in the amounts and time periods contemplated thereby. In addition,
we have assumed that the relative contribution of each of the Company and AORI
to the future financial performance of the respective companies on a combined
basis will be consistent with such forecasts. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the
Company or AORI or any of their subsidiaries and we
D-1
<PAGE>
have not been furnished with any such evaluation or appraisal. We also have
assumed with your consent that the transaction contemplated by the Agreement
will be accounted for as a pooling-of-interests under generally accepted
accounting principles. We were not requested to solicit, and did not solicit,
interest from other parties with respect to an acquisition of or other business
combination with the Company. Our opinion does not address the relative merits
of the transaction contemplated pursuant to the Agreement, as compared to any
alternative business transactions that might be available to the Company. Our
advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
-------------------------------------
(GOLDMAN, SACHS & CO.)
D-2
<PAGE>
APPENDIX E
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN ONCOLOGY RESOURCES, INC.
The name of the corporation is "American Oncology Resources, Inc." (the
"Corporation").
The original certificate of incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on October 30, 1992, under the
name "Ascend Medical Corporation." Such certificate of incorporation was
amended on each of November 12, 1992, March 10, 1994, May 2, 1995, May 10, 1996
and May 8, 1997.
This Amended and Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of
Directors of the Corporation, duly adopted by the stockholders of the
Corporation and duly executed and acknowledged by the officers of the
Corporation in accordance with Sections 103, 242 and 245 of the General
Corporation Law of the State of Delaware.
Pursuant to Section 103(d) of the General Corporation Law of the State of
Delaware, the Amended and Restated Certificate of Incorporation shall not be
effective until the Effective Time, as such term is defined in that certain
Agreement and Plan of Merger, dated as of December 11, 1998, among the
Corporation, Diagnostic Acquisition, Inc., a Texas corporation, and Pinehurst,
a Texas corporation, with such Effective Time to not be later than 12:01 a.m.,
Central Daylight Savings Time, on the 90th day after the filing date hereof.
The text of the Certificate of Incorporation of the Corporation, as amended,
is hereby further amended and restated to read in its entirety as follows:
ARTICLE I
The name of the corporation is US Oncology, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, New Castle County 19801-1196. The name of
the Corporation's registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The total number of shares of capital stock which the Corporation shall have
authority to issue is two hundred and one million (252,000,000) shares,
consisting of two million (2,000,000) shares of preferred stock, par value $.01
per share, out of which 500,000 shares have been designated as "Series A
Preferred Stock," and two hundred fifty million (250,000,000) shares of common
stock, par value $.01 per share.
E-1
<PAGE>
The Board of Directors of the Corporation shall have the power by resolution
to (a) provide for the issuance of shares of preferred stock in series, (b)
determine the number of shares of such stock in any such series, and (c) fix
the designations, preferences, qualifications, limitations, restrictions and
special or relative rights of shares of preferred stock or any series thereof.
ARTICLE V
In furtherance and not in limitation of the general powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
to make, alter or repeal the Bylaws of the Corporation, except as specifically
otherwise provided therein.
ARTICLE VI
The number of directors which shall constitute the whole Board of Directors
of the Corporation shall be determined in accordance with the Corporation's
Bylaws. The directors shall be divided into three classes, designated as Class
I, Class II and Class III. Each class shall consist, as nearly as possible, of
one-third of the total number of directors constituting the entire board of
directors. The term of the initial Class I directors shall terminate on the
date of the Annual Meeting of Stockholders to be held in 2000; the term of the
initial Class II directors shall terminate on the date of the Annual Meeting of
Stockholders to be held in 2001; and the term of the initial Class III
directors shall terminate on the date of the Annual Meeting of Stockholders to
be held in 2002. At each Annual Meeting of Stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms then expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Stockholders after their election. If the number
of directors is changed, then any increase or decrease in such number shall be
apportioned by the Board of Directors among the classes so as to maintain the
number of directors in each class as nearly as equal as possible. No reduction
in the authorized number of members of the Board of Directors shall have the
effect of removing any director from office before that director's term of
office expires. A director may be removed from office at any time but only for
cause and only by the affirmative vote of at least two-thirds of the voting
power of the all outstanding shares of capital stock of the Corporation then
entitled to vote at an election of directors of the Corporation, voting as a
single class. Except as may otherwise be provided by law, cause for removal
shall exist only if the director whose removal is proposed has been convicted
of a felony by a court of competent jurisdiction and such conviction is no
longer subject to direct appeal or has been adjudged by a court of competent
jurisdiction to be liable for negligence or misconduct in the performance of
his duty to the Corporation in a matter of substantial importance to the
corporation, and such adjudication is no longer subject to direct appeal.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders of the Corporation either
by or at the direction of the Nominating Committee of the Board of Directors or
by any stockholder of record entitled to vote in the election of directors at
such meeting who has complied with the notice procedures set forth in this
paragraph of this Article VI. A stockholder who desires to nominate a person
for election to the Board of Directors at a meeting of stockholders of the
Corporation and who is eligible to make such nomination must give timely
written notice of the proposed nomination to the Secretary of the Corporation.
To be timely, a stockholder's notice given pursuant to this paragraph must be
received at the principal executive office of the Corporation not less than one
hundred twenty (120) calendar days in advance of the date which is one year
later than the date of the proxy statement of the Corporation released to
stockholders of the Corporation in connection with the previous year's annual
meeting of stockholders of the Corporation; provided, however, that if no
annual meeting of stockholders of the Corporation was held the previous year or
if the date of the forthcoming annual meeting of stockholders has been changed
by more than thirty (30) calendar days from the date contemplated at the time
of the previous year's proxy statement or if the forthcoming meeting is not an
annual meeting of stockholders of the Corporation, then to be timely such
stockholder's notice must be so received not later than the close of business
on the tenth day following the earlier of (a) the day on which notice of the
date of the forthcoming meeting
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<PAGE>
was mailed or given to stockholders by or on behalf of the corporation or (b)
the day on which public disclosure of the date of the forthcoming meeting was
made by or on behalf of the Corporation. Such stockholder's notice to the
Secretary of the Corporation shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person; (iii) the class and number
of shares of capital stock of the Corporation which are then beneficially owned
by such person, (iv) any other information relating to such person that is
required by law or regulation to be disclosed in solicitations of proxies for
the election of directors of the Corporation and (v) such person's written
consent to being named as a nominee for election as a director and to serve as
a director if elected and (b) as to the stockholder giving the notice, (i) the
name and address, as they appear in the stock records of the Corporation, of
such stockholder, (ii) the class and number of shares of capital stock of the
Corporation which are then beneficially owned by such stockholder, (iii) a
description of all arrangements or understandings between such stockholder and
each nominee for election as a director and any other person or persons (naming
such person or persons) relating to the nomination proposed to be made by such
stockholder, and (iv) any other information required by law or regulation to be
provided by a stockholder intending to nominate a person for election as a
director of the Corporation. At the request of the Board of Directors, any
person nominated by or at the direction of the Board of Directors for election
as a director of the Corporation shall furnish to the Secretary of the
Corporation the information concerning such nominee which is required to be set
forth in a stockholder's notice of a proposed nomination. No person shall be
eligible for election as a director of the Corporation unless nominated in
compliance with the procedures set forth in this paragraph. The chairman of a
meeting of stockholders of the corporation shall refuse to accept the
nomination of any person not made in compliance with the procedures set forth
in this paragraph, and such defective nomination shall be disregarded.
ARTICLE VII
A director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except to the extent that Section 102(b)(7) (or any
successor provision) of the General Corporation Law of Delaware, as amended
from time to time, expressly provides that the liability of a director may not
be eliminated or limited.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions
of Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of the Delaware
Code, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE IX
The term of existence of the Corporation shall be perpetual.
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<PAGE>
ARTICLE X
No action shall be taken by stockholders of the Corporation except at an
annual meeting or special meeting of the stockholders of the Corporation.
Special meetings of the stockholders, for any purpose or purposes, may be
called by the Chairman of the Board or the President of the Corporation and
shall be called by the President or Secretary of the Corporation at the request
of a majority of the Board of Directors of the Corporation. No stockholders,
individually or collectively shall have the power to call a special meeting.
Business transacted at any special meeting shall be limited to the purposes
stated in the notice.
ARTICLE XI
Notwithstanding any provision of this Certificate of Incorporation or the
Bylaws of the Corporation to the contrary, the affirmative vote of the holders
of at least two-thirds of the voting power of all outstanding shares of the
capital stock of the Corporation then entitled to vote in an election of
directors, voting as a single class, shall be required to alter, amend or
repeal Article VI, Article X or this Article XI of this Certificate of
Incorporation, or any provision thereof, or to adopt any provision of this
Certificate of Incorporation or the Bylaws of the Corporation that is
inconsistent with any of the provisions of Article VI, of Article X or of this
Article XI of this Certificate of Incorporation.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its Chairman of the Board and
Chief Executive Officer and attested by its Secretary this day of
1999.
AMERICAN ONCOLOGY RESOURCES, INC.
By: _________________________________
R. Dale Ross, Chairman of the
Board
and Chief Executive Officer
Attest:
- -------------------------------------
Leo E. Sands, Secretary
E-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, a corporation may include provisions in its certificate
of incorporation that will relieve its directors of monetary liability for
breaches of their fiduciary duty to the corporation, except under certain
circumstances, including a breach of the director's duty of loyalty, acts or
omissions of the director not in good faith or which involve intentional
misconduct or a knowing violation of law, the approval of an improper payment
of a dividend or an improper purchase by the corporation of stock or any
transaction from which the director derived an improper personal benefit. AOR's
amended and restated certificate of incorporation provides that AOR's directors
are not liable to AOR or its stockholders for monetary damages for breach of
their fiduciary duty, subject to the described exceptions specified by Delaware
law.
Section 145 of the Delaware General Corporation Law grants to a corporation
the power to indemnify each of its officers and directors against liabilities
and expenses incurred by reason of the fact that he is or was an officer or
director of such corporation if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of such
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The amended and restated
bylaws of AOR provide for indemnification of each officer and director of AOR
to the fullest extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law also empowers a
corporation to purchase and maintain insurance on behalf of any person who is
or was an officer or director of such corporation against liability asserted
against or incurred by him in any such capacity, whether or not such
corporation would have the power to indemnify such officer or director against
such liability under the provisions of Section 145. AOR has purchased and
maintains a directors' and officers' liability policy for such purposes.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger by American Oncology Resources, Inc.,
Diagnostic Acquisition, Inc. and Physician Reliance Network, Inc.
(filed as an Exhibit to the Form 8-K filed with the Securities and
Exchange Commission on December 15, 1998 and incorporated by reference
herein).
4.1 Certificate of Incorporation of the Registrant, as amended
(incorporated by reference from Form 10-Q for the period ended June
30, 1997)
4.2 Bylaws of the Registrant, as amended (incorporated by reference from
Form 10-Q for the period ended June 30, 1997)
4.3 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Appendix E to the Joint Proxy Statement
and Prospectus included in this Registration Statement)
4.4 Amended and Restated Bylaws of the Registrant to be effective upon
consummation of the Merger
4.5 Rights Agreement between the Company and American Stock Transfer &
Trust Company (incorporated by reference from Form 8-A filed June 2,
1997)
4.6 Specimen Common Stock Certificate of AOR (Filed as Exhibit 4.1 to
AOR's Registration Statement on Form S-1 (No. 33-90634) and
incorporated herein by reference)
5 Opinion of Mayor, Day, Caldwell & Keeton, L.L.P.
8 Form of Opinion of Bass, Berry & Sims PLC
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants for AOR
23.2 Consent of Arthur Andersen LLP, independent accountants for PRN
23.3 Consent of Mayor, Day, Caldwell & Keeton, L.L.P. (included in Exhibit
5)
23.4 Consent of Bass, Berry & Sims PLC (included in Exhibit 8)
23.5 Consent of BT Alex. Brown Incorporated
23.6 Consent of Goldman, Sachs & Co.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
99.1 Consent of Person to become a Director--Nancy G. Brinker
99.2 Consent of Person to become a Director--John T. Casey
99.3 Consent of Person to become a Director--J. Taylor Crandall
99.4 Consent of Person to become a Director--Robert W. Daly
99.5 Consent of Person to become a Director--Stephen E. Jones, M.D.
99.6 Consent of Person to become a Director--Boone Powell, Jr.
99.7 Consent of Person to become a Director--Burton S. Schwartz, M.D.
99.8 Form of AOR Proxy
99.9 Form of PRN Proxy
</TABLE>
(b) Financial Statement Schedules:
None.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
(c)
(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415 ((S) 230.415
of this chapter), will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant for expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
[Signature Page on Next Page]
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AOR certifies
that is has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4, and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Houston, State of Texas on May 7, 1999.
AMERICAN ONCOLOGY RESOURCES, INC.
/s/ R. Dale Ross
By:__________________________________
R. Dale Ross
Chairman of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints R. Dale Ross, Lloyd K. Everson, M.D. and L. Fred
Pounds and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of American Oncology Resources, Inc.) to sign any or all
amendments (including pre-effective and post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of American Oncology Resources, Inc. and in the capacities and on the date
indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ R. Dale Ross Chief Executive
- ----------------------------------- Officer and
R. Dale Ross Chairman of the
Board
(Principal Executive Officer)
May 7, 1999
/s/Lloyd K. Everson, M.D. President, and May 7, 1999
Director
- -----------------------------------
Lloyd K. Everson, M.D.
/s/ L. Fred Pounds Vice President-Finance May 7, 1999
and Chief Financial
- ----------------------------------- Officer (Principal
L. Fred Pounds Financial and
Accounting Officer)
/s/ Russell L. Carson Director May 7, 1999
- -----------------------------------
Russell L. Carson
/s/ James E. Dalton Director May 7, 1999
- -----------------------------------
James E. Dalton
/s/ Kyle M. Fink, M.D. Director May 7, 1999
- -----------------------------------
Kyle M. Fink, M.D.
</TABLE>
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<PAGE>
EXHIBIT 4.4
AMENDED AND RESTATED BY-LAWS
OF
US ONCOLOGY, INC.
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I.
OFFICES
Section 1. The Corporation will maintain its executive offices at 16825
Northchase Drive, Suite 1300, Houston, Texas 77060, or such other place as
determined by the Board of Directors of the Company.
Section 2. The Corporation may have other offices at such places both
within and without the State of Delaware as the Board of Directors may from time
to time determine.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meetings of stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect directors and transact such other business
as may properly be brought before the meeting. Written notice of each annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 3. Special Meetings. Special meetings of stockholders, for any
purpose or purposes, may be called by the Chairman of the Board or the President
of the Corporation and shall be called by the President or Secretary of the
Corporation at the request of a majority of the Board of Directors. No
stockholders, individually or collectively, shall have the power to call a
special meeting. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote at such
meeting.
Section 4. Quorum. Except as otherwise provided by law, the Certificate
of Incorporation or these By-laws, the holders of a majority of the capital
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If,
<PAGE>
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.
Section 5. Advance Notice. No business may be transacted at an annual
meeting of stockholders, other than business that is either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (c) otherwise
properly brought before the annual meeting by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 5 and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in this Section 5. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
ninety (90) days nor more than one hundred twenty (120) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder, in order to be timely, must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or public disclosure
(as defined below) of the date of the annual meeting was made, whichever first
occurs. In no event shall the public disclosure of an adjournment of an annual
meeting commence a new time period for the giving of a stockholder's notice as
described above. For purposes of this second paragraph of Section 5, "public
disclosure" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press, PR Newswire, Bloomberg or comparable national
news service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended.
To be in proper written form, a stockholder's notice must set forth as to
each matter such stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of such stockholder, (iii) the class or series and
number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in
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such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 5; provided, however, that once business has been properly
brought before the annual meeting in accordance with such procedures, nothing in
this Section 5 shall be deemed to preclude discussion by any stockholder of any
such business. If the chairman of an annual meeting determines that business
was not properly brought before the annual meeting in accordance with the
foregoing procedures, the chairman shall declare that the business was not
properly brought before the meeting and such business shall not be transacted.
At a special meeting of stockholders, only such business shall be conducted
as shall have been set forth in the notice relating to the meeting. At any
meeting, matters incident to the conduct of the meeting may be voted upon or
otherwise disposed of as the presiding officer of the meeting shall determine to
be appropriate.
Section 6. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, (i) any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat, and (ii) each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy, but no proxy shall
be voted on or after three (3) years from its date, unless such proxy provides
for a longer period. The Board of Directors, in its discretion, or the officer
of the Corporation presiding at a meeting of stockholders, in his discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
Section 7. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
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ARTICLE III.
DIRECTORS
Section 1. Number and Election of Directors. The business and affairs of
the Corporation shall be managed by or under the direction of a Board of
Directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed from time to time exclusively by resolution of the
Board of Directors adopted by the affirmative vote of at least a majority of the
total number of authorized directors most recently fixed by the Board of
Directors. The directors shall be divided into three classes, designated as
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors. The term of the initial Class I directors shall terminate
on the date of the Annual Meeting of Stockholders to be held in 2000; the term
of the initial Class II directors shall terminate on the date of the Annual
Meeting of Stockholders to be held in 2001 and the term of the initial Class III
directors shall terminate on the date of the Annual Meeting of Stockholders to
be held in 2002. At each Annual Meeting of Stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms then expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Stockholders after their election. If the number
of directors is changed, then any increase or decrease in such number shall be
apportioned by the Board of Directors among the classes so as to maintain the
number of directors in each class as nearly as equal as possible. No reduction
in the authorized number of members of the Board of Directors shall have the
effect of removing any director from office before that director's term of
office expires.
Section 2. Vacancies. Vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
members of the Board of Directors may be filled only by a majority of the total
members of the Nominating Committee of the Board of Directors. Each director,
including a director elected to fill a vacancy or a newly created directorship,
shall hold office until the next election of the class of directors to which
such director belongs and until his or her successor is elected and qualified or
until this or her earlier death, resignation or removal from office. Any
director or the entire Board of Directors may be removed from office at any time
but only for cause and only by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all
outstanding shares of capital stock of the Corporation then entitled to vote in
an election of directors of the Corporation voting as a single class. Except as
may otherwise be provided by law, cause for removal shall exist only if the
director whose removal is proposed has been convicted of a felony by a court of
competent jurisdiction and such conviction is no longer subject to direct appeal
or has been adjudged by a court of competent jurisdiction to be liable for
negligence or misconduct in the performance of his duty to the Corporation in a
matter of substantial importance to the corporation, and such adjudication is no
longer subject to direct appeal.
Section 2A. Nominations. Nominations of persons for election to the Board
of Directors of the Corporation may be made at a meeting of stockholders of the
Corporation either by or at the direction of the Nominating Committee of the
Board of Directors or by any stockholder of record entitled to vote in the
election of directors at such meeting who has complied with the notice
procedures set forth in this Section 2A. A stockholder who desires to
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nominate a person for election to the Board of Directors at a meeting of
stockholders of the Corporation and who is eligible to make such nomination must
give timely written notice of the proposed nomination to the Secretary of the
Corporation. To be timely, a stockholder's notice given pursuant to this Section
2A must be received at the principal executive office of the Corporation not
less than one hundred twenty (120) calendar days in advance of the date which is
one year later than the date of the proxy statement of the Corporation released
to stockholders of the Corporation in connection with the previous year's annual
meeting of stockholders of the Corporation; provided, however, that if no annual
meeting of stockholders of the Corporation was held the previous year or if the
date of the forthcoming annual meeting of stockholders has been changed by more
than thirty (30) calendar days from the date contemplated at the time of the
previous year's proxy statement or if the forthcoming meeting is not an annual
meeting of stockholders of the Corporation, then to be timely such stockholder's
notice must be so received not later than the close of business on the tenth day
following the earlier of (a) the day on which notice of the date of the
forthcoming meeting was mailed or given to stockholders by or on behalf of the
corporation or (b) the day on which public disclosure of the date of the
forthcoming meeting was made by or on behalf of the Corporation. Such
stockholder's notice to the secretary of the Corporation shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or re-
election as a director (i) the name, age, business address and residence address
of such person, (ii) the principal occupation or employment of such person;
(iii) the class and number of shares of capital stock of the Corporation which
are then beneficially owned by such person, (iv) any other information relating
to such person that is required by law or regulation to be disclosed in
solicitations of proxies for the election of directors of the Corporation and
(v) such person's written consent to being named as a nominee for election as a
director and to serve as a director if elected and (b) as to the stockholder
giving the notice, (i) the name and address, as they appear in the stock records
of the Corporation, of such stockholder, (ii) the class and number of shares of
capital stock of the Corporation which are then beneficially owned by such
stockholder, (iii) a description of all arrangements or understandings between
such stockholder and each nominee for election as a director and any other
person or persons (naming such person or persons) relating to the nomination
proposed to be made by such stockholder, and (iv) any other information required
by law or regulation to be provided by a stockholder intending to nominate a
person for election as a director of the Corporation. At the request of the
Board of Directors, any person nominated by or at the direction of the Board of
Directors for election as a director of the Corporation shall furnish to the
secretary of the Corporation the information concerning such nominee which is
required to be set forth in a stockholder's notice of a proposed nomination. No
person shall be eligible for election as a director of the Corporation unless
nominated in compliance with the procedures set forth in this Section 2A. The
chairman of a meeting of stockholders of the corporation shall refuse to accept
the nomination of any person not made in compliance with the procedures set
forth in this Section 2A, and such defective nomination shall be disregarded.
Section 3. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Corporation's Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
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Section 4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chief Executive Officer or any two directors. Notice thereof stating the
place, date and hour of the meeting shall be given to each director either by
mail not less than forty-eight (48) hours before the time of the meeting, by
telephone, electronic facsimile or telegram not less than twenty-four (24) hours
before the time of the meeting, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 5. Quorum. Except as may be otherwise specifically provided by
law, the Corporation's Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire number of members
of the Board of Directors (including any directorships that are then vacant)
shall constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Actions of Board. Unless otherwise provided by the
Corporation's Certificate of Incorporation or these By-Laws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Corporation's Certificate of Incorporation or these By-Laws,
members of the Board of Directors of the Corporation, or any committee
designated by the Board of Directors, may participate in a meeting of the Board
of Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 7 of this Article III shall constitute presence in person at such
meeting.
Section 8. Committees. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Nominating Committee of the Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of any such committee. In the
absence or disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any absent or disqualified member. Any
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committee, to the extent allowed by law and provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when required.
Section 9. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
Section 10. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV.
OFFICERS
Section 1. General. The offices of the Corporation shall be chosen by the
Board of Directors and shall be a Chief Executive Officer, a President, a Vice
President and a Secretary. The Board of Directors, in its discretion, may also
choose a Chairman of the Board, a Treasurer and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Corporation's Certificate of Incorporation or these By-Laws. The officers of
the Corporation need not be stockholders of the Corporation nor need such
officers be directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting held
after each annual meeting of stockholders shall elect the officers of the
Corporation, who shall hold their offices
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for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors; and all officers of
the Corporation shall hold office until their successors are chosen and
qualified, or until their earlier death, resignation or removal. Any officer
elected by the Board of Directors may be removed at any time by the affirmative
vote of a majority of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors. The
salaries and other compensation of all officers of the Corporation shall be
fixed by the Board of Directors, or a committee thereof.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chief Executive Officer, President or
any Vice President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
Section 4. Chairman of the Board. The Chairman of the Board, if there is
one, shall preside at all meetings of the Board of Directors and shall perform
such other duties, if any, as may be specified by the Board from time to time.
Section 5. Chief Executive Officer. The Chief Executive Officer of the
Corporation shall be the chief executive officer of the Corporation, shall have
general direction of the business and affairs of the Corporation and general
supervision over its several officers, subject, however, to the control of the
Board of Directors, and shall see that all orders and resolutions of the Board
of Directors are carried into effect. The Chief Executive Officer may sign,
with the Secretary or Assistant Secretary, certificates representing shares of
stock of the Corporation. The Chief Executive Officer shall perform all duties
incident to the office of the Chief Executive Officer and such other duties as
from time to time may be assigned to him by the Board of Directors or as
prescribed by these Bylaws.
Section 6. President. The President shall in the absence of the Chief
Executive Officer perform the duties and exercise the power of the Chief
Executive Officer and shall perform such other duties and have such other powers
as the Board of Directors or the Chief Executive Officer may from time to time
prescribe. The President may sign, with the Secretary or Assistant Secretary,
certificates representing shares of stock of the Corporation.
Section 7. Chief Operating Officer. The Chief Operating Officer shall be
the chief operating officer and shall have such other powers as the Board of
Directors or the Chief Executive Officer may from time to time prescribe. In
the absence of the Chief Executive Officer and President, the Chief Operating
Officer shall have the duties and exercise the powers of the Chief Executive
Officer.
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Section 8. Chief Financial Officer. The Chief Financial Officer of the
Corporation shall be the chief financial officer of the Corporation. The Chief
Financial Officer shall perform such other duties and have such other powers as
the Board of Directors or the Chief Executive Officer may from time to time
prescribe.
Section 9. Vice Presidents. The Vice Presidents shall perform such duties
and have such authority as may be specified in these Bylaws or by the Board of
Directors or the Chief Executive Officer.
Section 10. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or the Chief Executive Officer.
Section 11. Assistant Secretaries. The Assistant Secretary or Secretaries
shall, in the absence or disability of the Secretary, perform the duties and
exercise the authority of the Secretary and shall perform such other duties and
have such other authority as the Board of Directors or the Chief Executive
Officer may from time to time prescribe.
Section 12. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors or the Chief Executive Officer or the Chief Financial
Officer, taking proper vouchers for such disbursements, and shall render to the
Board of Directors when the Board so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
Section 13. Assistant Treasurers. The Assistant Treasurer or Treasurers
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the authority of the Treasurer and shall perform such other duties and
have such other authority as the Board of Directors or the Chief Executive
Officer or the Chief Financial Officer may from time to time prescribe.
ARTICLE V.
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chief Executive Officer or a Vice President and (ii) by the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by such holder of stock in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate
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shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By--Laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI.
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Corporation's Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member
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of a committee or stockholder, at his address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Written notice may also be given personally or by electronic facsimile,
telegram, telex, overnight courier or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Corporation's Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Corporation's Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, and may be paid in cash, in property, or in shares of the
capital stock. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal, if any, shall be in such
form as the Board of Directors may prescribe.
ARTICLE VIII.
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other than
Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including
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attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
the directors who were not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion or (iii)
by the stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the specific case.
Section 4. Definitions. For purposes of any determination under Section 3
of this Article VIII, a person shall be deemed to have acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe such
12
<PAGE>
person's conduct was unlawful, if such person's action is based on the records
or books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 of this Article VIII shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 of this
Article VIII shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as
the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article VIII. The basis of such indemnification by a court
shall be a determination by such court that indemnification of the director or
officer is proper in the circumstances because such person has met the
applicable standards of conduct set forth in Section 1 or Section 2 of this
Article VIII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director or officer seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 5 of this Article VIII shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses (including attorneys'
fees) incurred by a director or officer in defending any threatened or pending
civil, criminal, administrative or investigative action, suit or proceeding may
be required by the Board of Directors to be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by or granted pursuant
to this Article VIII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any By-Law, agreement, contract, vote of stockholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in a person's official capacity and
as to action in another capacity while holding such office, it being the policy
of the Corporation that indemnification of the persons specified in Sections 1
and 2 of this Article VIII shall be
13
<PAGE>
made to the fullest extent permitted by law. The provisions of this Article VIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Section 1 or Section 2 of this Article VIII but whom the
Corporation has the power or obligation to indemnify under the provisions of the
General Corporation Law of the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
such person and incurred by him in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power or
the obligation to indemnify such person against such liability under the
provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such indemnification relates to such
person's acts while serving in any of the foregoing capacities of such
constituent corporation, as such person would have with respect to such
constituent corporation if its separate existence had continued. For purposes
of this Article VIII, references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the Corporation" shall include any service as a
director or officer of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 of this
Article VIII), the Corporation shall not be obligated to indemnify any director
or officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
14
<PAGE>
Section 12. Indemnification of Employees and Agents. The Corporation may,
to the extent authorized from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article VIII to
directors and officers of the Corporation.
ARTICLE IX.
AMENDMENTS
Section 1. Amendments. These Bylaws may be altered, amended or repealed,
and new Bylaws may be adopted, in any manner not inconsistent or in conflict
with the Certificate of Incorporation or applicable law, by the stockholders or
by the Board of Directors at any regular meeting of the stockholders or of the
Board of Directors or at any special meeting of the stockholders or of the Board
of Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting.
Section 2. Restrictions. Notwithstanding anything to the contrary, no
amendment to these By-laws shall amend, alter, change or repeal any of the
provisions of this Section 2 or Section 1, 2 or 2A of Article III of these By-
Laws, unless such amendment, alteration, change or repeal shall receive the
affirmative vote of the holders of not less than two-thirds of all shares of
stock of the Corporation entitled to vote at a meeting of stockholders, voting
together as a single class.
15
<PAGE>
[Letterhead of Mayor, Day, Caldwell & Keeton, L.L.P.]
EXHIBIT 5
May 10, 1999
American Oncology Resources, Inc.
16825 Northchase Drive, Suite 1300
Houston, Texas 77060
Ladies and Gentlemen:
We have acted as counsel for American Oncology Resources, Inc., a Delaware
corporation (the "Company"), in connection with the registration and proposed
issuance of up to an aggregate of 48,800,000 shares (the "Shares") of Common
Stock, par value $.01 per share, of the Company ("Common Stock"), to be issued
in connection with a proposed merger (the "Merger") of Diagnostic Acquistion,
Inc., a Delaware corporation ("Sub"), that is the Company's wholly owned
subsidiary, with and into Physician Reliance Network, Inc. ("PRN"), a Delaware
corporation, all as described in the Company's Registration Statement on Form
S-4 filed on even date herewith with the Securities and Exchange Commission
under the Securities Act of 1933, as amended ("Registration Statement"). In such
capacity, we have familiarized ourselves with the Articles of Incorporation and
Bylaws of the Company and have examined all statutes and other records,
instruments and documents pertaining to the Company that we have deemed
necessary to examine for the purposes of this opinion.
Based upon our examination as aforesaid, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware; and
2. Upon the issuance of the up to 50,000,000 Shares being issued by the
Company in the Merger approved by the Company's Board of Directors and
in accordance with the terms of the Merger Agreement (as defined in
the Registration Statement) among the Company, Sub and PRN, such
Company Shares will be duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name in the Registration Statement at each place in which it appears.
Very truly yours,
/s/ MAYOR, DAY, CALDWELL & KEETON, L.L.P.
<PAGE>
EXHIBIT 8
B A S S, B E R R Y & S I M S P L C
A PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
2700 FIRST AMERICAN CENTER 1700 RIVERVIEW TOWER
NASHVILLE, TENNESSEE 37238-2700 POST OFFICE BOX 1509
TELEPHONE (615) 742-6200 KNOXVILLE, TENNESSEE 37901-1509
TELECOPIER (615) 742-6293 TELEPHONE (423) 521-6200
TELECOPIER (423) 521-6234
June __, 1999
Board of Directors
Physician Reliance Network, Inc.
5420 LBJ Freeway, Suite 900
Dallas, Texas 75240
Re PHYSICIAN RELIANCE NETWORK, INC. AND AMERICAN ONCOLOGY RESOURCES, INC.
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as counsel to Physician Reliance Network, Inc., a Texas
corporation ("PRN"), in connection with a proposed reorganization (the "Merger")
to be effected through a merger of Diagnostic Acquisition, Inc., a Texas
corporation ("Merger Sub") and newly formed, wholly owned subsidiary of American
Oncology Resources, Inc., a Delaware corporation ("American"), with PRN being
the surviving corporation, pursuant to the terms of the Agreement and Plan of
Merger among American, Merger Sub and PRN dated as of December 11, 1998 (the
"Merger Agreement"), and as described in the Registration Statement of Form S-4
filed with the Securities and Exchange Commission effective on May 11, 1999 (the
"Registration Statement"). This opinion is being rendered pursuant to Section
8.2(d) of the Merger Agreement. In connection with this opinion, we have
examined and are familiar with originals or copies of (i) the Merger Agreement,
(ii) the facts set forth in the Registration Statement, and (iii) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinions below. This opinion is subject to certain factual
assumptions and representations certified by authorized representatives of PRN,
American, and Merger Sub which are to be delivered to us prior to the Effective
Time of the Merger (as defined in the Merger Agreement).
Based upon and subject to the foregoing, in our opinion, the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
The opinions expressed herein are expressly premised and conditioned upon
the consummation of the Merger pursuant to the terms and conditions of the
Merger Agreement. Our opinions are also based upon the application of existing
law for the instant transaction. You should note that future legislative
changes, administrative pronouncements and judicial decisions could
<PAGE>
Board of Directors
Physician Reliance Network, Inc.
Page 2
materially alter the conclusions reached herein. There can be no assurance that
contrary positions may not be taken by the Internal Revenue Service or by the
courts. Furthermore, this opinion does not apply to particular types of
shareholders subject to special tax treatment under federal income tax laws
(including, without limitation, PRN stockholders who do not hold their PRN
common stock as a capital asset, foreign persons, insurance companies, tax-
exempt organizations, financial institutions, securities dealers, broker-dealers
or persons who acquired their shares in compensatory transactions). This opinion
does not address any foreign, state or local tax consequences of the Merger that
may be applicable.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the use of our name in the
Registration Statement and to the filing of this letter as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
We have rendered the foregoing opinion for the sole benefit and use of PRN,
its Board of Directors and the shareholders of PRN; the views herein may not be
relied upon or furnished to any other person without our prior written consent.
Sincerely,
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy Statement
and Prospectus constituting part of this Registration Statement on Form S-4 of
American Oncology Resources, Inc. of our report dated March 2, 1999 appearing on
page 25 of American Oncology Resources, Inc.'s Annual Report on Form 10-K/A for
the year ended December 31, 1998. We also consent to the references to us under
the headings "Experts" in such Joint Proxy Statement and Prospectus.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
May 7, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our reports dated
February 19, 1999, included in Physician Reliance Network, Inc.'s Form 10-K for
the year ended December 31, 1998, and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
Dallas, Texas
May 7, 1999
<PAGE>
EXHIBIT 23.5
CONSENT
OF
BT ALEX. BROWN INCORPORATED
We hereby consent to (i) the inclusion of our opinion letter, dated May 10,
1999, to the Board of Directors of American Oncology Resources, Inc. as
Appendix C to the Joint Proxy Statement and Prospectus forming part of this
Registration Statement on Form S-4, and (ii) references to our firm name in the
Joint Proxy Statement and Prospectus in connection with references to the
opinion. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as Amended, and the Rules and Regulations Promulgated thereunder,
and we do not admit that we are experts with respect to any part of the
Registration Statement within the meaning of the term "expert" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
BT ALEX. BROWN INCORPORATED
/s/ Steven R. Schuh
By:____________________________________
Name: Steven R. Schuh
Title: Managing Director
May 10, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
May 10, 1999
Board of Directors
Physician Reliance Network, Inc.
Two Lincoln Centre
5420 LBJ Freeway
Suite 900
Dallas, TX 75240
Re: Registration Statement of American Oncology Resources, Inc. relating to the
shares of common stock being registered in connection with the below referenced
Agreeement and Plan of Merger.
Ladies and Gentlemen:
Reference is made to our opinion letter dated May 10, 1999 with respect to
the fairness from a financial point of view to the holders of the outstanding
shares of Common Stock, no par value per share (the "Shares"), of Physician
Reliance Network, Inc. (the "Company") of the exchange ratio of 0.94 shares of
Common Stock, par value $0.01 per share, of American Oncology Resources, Inc.
("AORI") to be received for each Share pursuant to the Agreement and Plan of
Merger, dated as of December 11, 1998, among AORI, Diagnostic Acquisition,
Inc., a wholly-owned subsidiary of AORI, and the Company.
The foregoing opinion letter is provided for the information and assistance
of the Board of Directors of the Company in connection with its consideration
of the transaction contemplated therein and is not to be used, circulated,
quoted or otherwise referred to for any other purpose, nor is it to be filed
with, included in or referred to in whole or in part in any registration
statement, proxy statement or any other document, except in accordance with our
prior written consent. We understand that the Company has determined to include
our opinion in the above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our
Firm under the captions "Summary," "The Merger--Background of the Merger," "The
Merger--PRN's Reasons for the Merger" and "The Merger--Opinion of PRN's
Financial Advisor" and to the inclusion of the foregoing opinion in the Joint
Proxy Statement/Prospectus included in the above mentioned Registration
Statement. In giving such consent, we do not hereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
_______________________________________
(GOLDMAN, SACHS & CO.)
<PAGE>
EXHIBIT 99.1
CONSENT OF NANCY G. BRINKER
The undersigned, Nancy G. Brinker, hereby consents to being named in
the Registration Statement on Form S-4 of American Oncology Resources, Inc. (the
"Company") and any preliminary prospectus or prospectuses to be filed in
connection therewith as a person to be appointed a director of the Company.
/s/ NANCY G. BRINKER
---------------------------------------
Nancy G. Brinker
<PAGE>
EXHIBIT 99.2
CONSENT OF JOHN T. CASEY
The undersigned, John T. Casey, hereby consents to being named in the
Registration Statement on Form S-4 of American Oncology Resources, Inc. (the
"Company") and any preliminary prospectus or prospectuses to be filed in
connection therewith as a person to be appointed a director of the Company.
/s/ JOHN T. CASEY
---------------------------------------
John T. Casey
<PAGE>
EXHIBIT 99.3
CONSENT OF J. TAYLOR CRANDALL
The undersigned, J. Taylor Crandall, hereby consents to being named in
the Registration Statement on Form S-4 of American Oncology Resources, Inc. (the
"Company") and any preliminary prospectus or prospectuses to be filed in
connection therewith as a person to be appointed a director of the Company.
/s/ J. TAYLOR CRANDALL
---------------------------------------
J. Taylor Crandall
<PAGE>
EXHIBIT 99.4
CONSENT OF ROBERT W. DALY
The undersigned, Robert W. Daly, hereby consents to being named in
the Registration Statement on Form S-4 of American Oncology Resources, Inc. (the
"Company") and any preliminary prospectus or prospectuses to be filed in
connection therewith as a person to be appointed a director of the Company.
/s/ ROBERT W. DALY
---------------------------------------
Robert W. Daly
<PAGE>
EXHIBIT 99.5
CONSENT OF STEPHEN E. JONES, M.D.
The undersigned, Stephen E. Jones, M.D., hereby consents to being named
in the Registration Statement on Form S-4 of American Oncology Resources, Inc.
(the "Company") and any preliminary prospectus or prospectuses to be filed in
connection therewith as a person to be appointed a director of the Company.
/s/ STEPHEN E. JONES
---------------------------------------
Stephen E. Jones, M.D.
<PAGE>
EXHIBIT 99.6
CONSENT OF BOONE POWELL, JR.
The undersigned, Boone Powell, Jr., hereby consents to being named
in the Registration Statement on Form S-4 of American Oncology Resources, Inc.
(the "Company") and any preliminary prospectus or prospectuses to be filed in
connection therewith as a person to be appointed a director of the Company.
/s/ BOONE POWELL, JR.
---------------------------------------
Boone Powell, Jr.
<PAGE>
EXHIBIT 99.7
CONSENT OF BURTON S. SCHWARTZ, M.D.
The undersigned, Burton S. Schwartz, M.D., hereby consents to being
named in the Registration Statement on Form S-4 of American Oncology Resources,
Inc. (the "Company") and any preliminary prospectus or prospectuses to be filed
in connection therewith as a person to be appointed a director of the Company.
/s/ BURTON S. SCHWARTZ
---------------------------------------
Burton S. Schwartz, M.D.
<PAGE>
EXHIBIT 99.8
FRONT SIDE OF PROXY
AMERICAN ONCOLOGY RESOURCES, INC. Annual Meeting Proxy No. Shares
June 15, 1999 In Your Name
The undersigned hereby appoints R. DALE ROSS and LEO E. SANDS, or either of
them, each with power to appoint his substitute, as proxies of the undersigned
and authorizes them to represent and vote, as designated below, all the shares
of the Common Stock of American Oncology Resources, Inc. that the undersigned
would be entitled to vote if personally present, and to act for the undersigned
at the annual meeting to be held June 15, 1999, or any adjournment thereof.
Dated:_____________________, 1999
_________________________________
_________________________________
Signature(s) of Stockholder(s)
(Please sign exactly as shown
hereon. Executors, administrators,
guardian, trustees, attorneys, and
officers signing for corporations
should give full title. If a
partnership or jointly owned, each
owner should sign.)
BACK SIDE OF PROXY
AMERICAN ONCOLOGY RESOURCES, INC. Annual Meeting
June 15, 1999 Continued from other side
This proxy will be voted in the manner directed herein and in accordance with
the accompanying Joint Proxy Statement and Prospectus. Receipt of the Joint
Proxy Statement and Prospectus and the Annual Report for the fiscal year ended
December 31, 1998 is hereby acknowledged. If no direction is made, this proxy
will be voted FOR proposals 1, 2, 3, 4, 5, 6 and 7 which are being proposed by
the Board of Directors of American Oncology Resources, Inc.
1. APPROVAL OF THE ISSUANCE OF UP TO 50,000,000 SHARES OF COMMON STOCK, PAR
VALUE $.01 PER SHARE, OF AMERICAN ONCOLOGY RESOURCES IN CONNECTION WITH THE
AGREEMENT AND PLAN OF MERGER DATED AS OF DECEMBER 11, 1998, AMONG AMERICAN
ONCOLOGY RESOURCES, INC., PHYSICIAN RELIANCE NETWORK, INC. AND DIAGNOSTIC
ACQUISITION, INC., A WHOLLY-OWNED SUBSIDIARY OF AOR.
[_] FOR [_] AGAINST [_] ABSTAIN
2. APPROVAL OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
[_] FOR [_] AGAINST [_] ABSTAIN
3. APPROVAL OFF AMENDMENT TO THE COMPANY'S 1993 AFFILIATE STOCK OPTION PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
4. APPROVAL OF AMENDMENTS TO THE COMPANY'S 1993 NON-EMPLOYEE DIRECTORS STOCK
PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
5. ELECTION OF SEVEN DIRECTORS:
Nominees: Russell L. Carson, James E. Dalton, Stanley M. Marks, M.D.,
Richard B. Mayor, Robert A. Ortenzio, Edward E. Rogoff, M.D., R. Dale Ross
(Mark only one)
[_] VOTE FOR all nominees listed, except as marked to the contrary above
(if any).
(To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list above).
[_] WITHHOLD AUTHORITY to vote for all nominees listed above.
6. APPROVAL OF AMENDMENT TO THE COMPANY'S 1993 KEY EMPLOYEE STOCK OPTION PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
7. RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT AUDITORS
[_] FOR [_] AGAINST [_] ABSTAIN
8. In accordance with their discretion upon such other business as may properly
come before the meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
________________________________________________________________
PLEASE MARK, DATE AND SIGN THIS PROXY
<PAGE>
EXHIBIT 99.9
PROXY PHYSICIAN RELIANCE NETWORK, INC. PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF SHAREHOLDERS OF PHYSICIAN RELIANCE NETWORK, INC.
(THE "COMPANY") TO BE HELD ON JUNE 15, 1999
The undersigned hereby appoints John T. Casey and George P. McGinn, Jr.,
and each of them, as proxies, with full power of substitution, to vote all
shares of the undersigned as shown below on this proxy at the Special Meeting of
Shareholders of Physician Reliance Network, Inc. to be held at Marriott
Rivercenter, 101 Bowie Street, San Antonio, Texas, on Tuesday, June 15, 1999 at
8:00 a.m., Central Time, and any adjournments thereof.
YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NO
CHOICE IS SPECIFIED, SHARES WILL BE VOTED FOR THE APPROVAL OF THE MERGER
AGREEMENT.
New Address:__________________________
______________________________________
______________________________________
(Please date and sign this proxy on the reverse side.)
PHYSICIAN RELIANCE NETWORK, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1. Approval of the Agreement and Plan of Merger dated as of December 11, 1998
(the "Merger Agreement"), among the Company, American Oncology Resources,
Inc. ("AOR"), and Diagnostic Acquisition, Inc., a wholly-owned subsidiary
of AOR ("Merger Sub").
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion on any other matter that may properly come before said
meeting or any adjournments thereof.
Check here for address change: [_]
PLEASE SIGN HERE AND RETURN PROMPTLY
Dated: ___________________________, 1999
Signature(s)____________________________
________________________________________
Please sign exactly as your name appears at
left. If registered in the names of two or
more persons, each should sign. Executors,
administrators, trustees, guardians,
attorneys, and corporate officers should
show their full titles.
