<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT
PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
STATEMENT ON
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
------------------------
SHERIDAN HEALTHCARE, INC.
(NAME OF SUBJECT COMPANY)
VESTAR/SHERIDAN, INC.
VESTAR/SHERIDAN HOLDINGS, INC.
VESTAR/SHERIDAN INVESTORS, LLC
(BIDDER)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLES OF CLASSES OF SECURITIES)
------------------------
823781109
823781208
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
------------------------
JAMES L. ELROD, JR.
VESTAR/SHERIDAN INVESTORS, LLC
245 PARK AVENUE, 41ST FLOOR
NEW YORK, NY 10167
TELEPHONE: (212) 351-1600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
COPY TO:
PETER J. GORDON, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE: (212) 455-2000
------------------------
CALCULATION OF FILING FEE
<TABLE>
<S> <C>
- - ---------------------------------------------------------------------------------------------
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Transaction Valuation* $73,719,530.75 Amount of Filing Fee** $14,743.91
- - ---------------------------------------------------------------------------------------------
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</TABLE>
* Based on the offer to purchase all of the outstanding shares of Common Stock,
par value $0.01 (the "Common Stock"), and Class A Common Stock, par value
$0.01 (the "Class A Common Stock"), of the Subject Company at $9.25 per share
in cash, 6,290,178 shares of Common Stock and 296,638 shares of Class A
Common Stock outstanding, and options to purchase 1,382,863 shares of Common
Stock outstanding as of March 28, 1999.
** 1/50 of 1% of Transaction Valuation.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid:
Form or Registration No.:
Filing Party:
Date Filed:
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<PAGE> 2
CUSIP NO. (COMMON STOCK) 823781109
<TABLE>
<C> <S> <C> <C>
- - ----------------------------------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Vestar/Sheridan, Inc.
- - ----------------------------------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
2 (b) [X]
- - ----------------------------------------------------------------------------------------------------------
SEC USE ONLY
3
- - ----------------------------------------------------------------------------------------------------------
SOURCE OF FUNDS
4
AF, BK
- - ----------------------------------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- - ----------------------------------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- - ----------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH
SOLE VOTING POWER
7
0
-----------------------------------------------------------------
SHARED VOTING POWER*
8
698,759 SHARES OF COMMON STOCK
-----------------------------------------------------------------
SOLE DISPOSITIVE POWER
9
0
-----------------------------------------------------------------
SHARED DISPOSITIVE POWER*
10
698,759 SHARES OF COMMON STOCK
- - ----------------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
11 PERSON*
698,759 SHARES OF COMMON STOCK
- - ----------------------------------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
12 CERTAIN SHARES [ ]
- - ----------------------------------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
10.7% (BASED ON 6,516,551 SHARES OF COMMON STOCK OUTSTANDING AFTER GIVING EFFECT TO
ISSUANCE OF SHARES OF COMMON STOCK UNDERLYING OPTIONS INCLUDED IN ROW (11))
- - ----------------------------------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
CO
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
* Beneficial ownership is based solely on the provisions of the Tender Agreement
and the Subscription and Tender Agreements described in Item 7 herein,
pursuant to which, among other things, certain officers of Sheridan
Healthcare, Inc. who beneficially own Common Stock have agreed with the sole
stockholder of the reporting person to (1) vote the shares of Common Stock
shown here as beneficially owned in favor of the adoption of the Merger
Agreement and against any action or agreement that would impede, interfere
with, delay or prevent the purchase of shares pursuant to the Offer or the
consummation of the Merger or would result in a breach of any covenant,
representation or warranty contained in the Merger Agreement and (2) tender
such shares into the Offer. Capitalized terms have the meanings assigned
thereto herein.
2
<PAGE> 3
CUSIP NO. (COMMON STOCK) 823781109
<TABLE>
<C> <S> <C> <C>
- - ----------------------------------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Vestar/Sheridan Holdings, Inc.
- - ----------------------------------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
2 (b) [X]
- - ----------------------------------------------------------------------------------------------------------
SEC USE ONLY
3
- - ----------------------------------------------------------------------------------------------------------
SOURCE OF FUNDS
4
AF
- - ----------------------------------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- - ----------------------------------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- - ----------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH
SOLE VOTING POWER
7
0
-----------------------------------------------------------------
SHARED VOTING POWER*
8
698,759 SHARES OF COMMON STOCK
-----------------------------------------------------------------
SOLE DISPOSITIVE POWER
9
0
-----------------------------------------------------------------
SHARED DISPOSITIVE POWER*
10
698,759 SHARES OF COMMON STOCK
- - ----------------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
11 PERSON*
698,759 SHARES OF COMMON STOCK
- - ----------------------------------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
12 CERTAIN SHARES [ ]
- - ----------------------------------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
10.7% (BASED ON 6,516,551 SHARES OF COMMON STOCK OUTSTANDING AFTER GIVING EFFECT TO ISSUANCE
OF SHARES OF COMMON STOCK UNDERLYING OPTIONS INCLUDED IN ROW (11))
- - ----------------------------------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
CO
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
* Beneficial ownership is based solely on the provisions of the Tender Agreement
and the Subscription and Tender Agreements, described in Item 7 herein,
pursuant to which among, other things, certain officers of Sheridan
Healthcare, Inc. who beneficially own Common Stock have agreed with the
reporting person to (1) vote the shares of Common Stock shown here as
beneficially owned in favor of the adoption of the Merger Agreement and
against any action or agreement that would impede, interfere with, delay or
prevent the purchase of shares pursuant to the Offer or the consummation of
the Merger or would result in a breach of any covenant, representation or
warranty contained in the Merger Agreement and (2) tender such shares into the
Offer. Capitalized terms have the meanings assigned thereto herein.
3
<PAGE> 4
CUSIP NO. (COMMON STOCK) 823781109
<TABLE>
<C> <S> <C> <C>
- - ----------------------------------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Vestar/Sheridan Investors, LLC
- - ----------------------------------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
2 (b) [X]
- - ----------------------------------------------------------------------------------------------------------
SEC USE ONLY
3
- - ----------------------------------------------------------------------------------------------------------
SOURCE OF FUNDS
4
AF
- - ----------------------------------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- - ----------------------------------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- - ----------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH
SOLE VOTING POWER
7
0
-----------------------------------------------------------------
SHARED VOTING POWER*
8
698,759 SHARES OF COMMON STOCK
-----------------------------------------------------------------
SOLE DISPOSITIVE POWER
9
0
-----------------------------------------------------------------
SHARED DISPOSITIVE POWER*
10
698,759 SHARES OF COMMON STOCK
- - ----------------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
11 PERSON*
698,759 SHARES OF COMMON STOCK
- - ----------------------------------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
12 CERTAIN SHARES [ ]
- - ----------------------------------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
10.7% (BASED ON 6,516,551 SHARES OF COMMON STOCK OUTSTANDING AFTER GIVING EFFECT TO ISSUANCE
OF SHARES OF COMMON STOCK UNDERLYING OPTIONS INCLUDED IN ROW (11))
- - ----------------------------------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
HC
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
* Beneficial ownership is based solely on the provisions of the Tender Agreement
and the Subscription and Tender Agreements described in Item 7 herein,
pursuant to which among, other things, certain officers of Sheridan
Healthcare, Inc. who beneficially own Common Stock have agreed with a wholly
owned subsidiary of the reporting person to (1) vote the shares of Common
Stock shown here as beneficially owned in favor of the adoption of the Merger
Agreement and against any action or agreement that would impede, interfere
with, delay or prevent the purchase of shares pursuant to the Offer or
consummation of the Merger or would result in a breach of any covenant,
representation or warranty contained in the Merger Agreement and (2) tender
such shares into the Offer. Capitalized terms have the meanings assigned
thereto herein.
4
<PAGE> 5
This Tender Offer Statement on Schedule 14D-1 and Statement on Schedule 13D
(the "Schedule 14D-1/13D") relates to the offer by Vestar/Sheridan, Inc.,
(formerly known as Vestar/Calvary, Inc.) a Delaware corporation ("Purchaser")
and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc.(formerly known
as Vestar/Calvary Holdings, Inc.), a Delaware corporation ("Parent") and a
wholly owned subsidiary of Vestar/Sheridan Investors, LLC (formerly known as
Vestar/Calvary Investors, LLC) ("Holdings"), a Delaware limited liability
company, to purchase for cash all of the outstanding shares of Common Stock, par
value $0.01 per share, and Class A Common Stock, par value $0.01 per share
(collectively, the "Shares"), of Sheridan Healthcare, Inc., a Delaware
corporation (the "Company"), at a purchase price of $9.25 per Share, net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated as of March 31, 1999 (the
"Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and
in the related Letter of Transmittal (which, together with the Offer to
Purchase, as amended from time to time, constitute the "Offer"), a copy of which
is attached hereto as Exhibit (a)(2).
ITEM 1. SECURITY AND SUBJECT COMPANY.
a. The name of the subject company is Sheridan Healthcare, Inc. The
information set forth in "THE TENDER OFFER -- Section 6" ("Certain Information
Concerning the Company") of the Offer to Purchase is incorporated herein by
reference.
b. The exact title of the class of equity securities being sought in the
Offer is Common Stock, par value $0.01 per share, and Class A Common Stock, par
value $0.01 per share, of the Company. The information set forth in the
Introduction (the "Introduction") of the Offer to Purchase is incorporated
herein by reference.
c. The information set forth in "THE TENDER OFFER -- Section 5" ("Price
Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is filed by Purchaser, Parent and Holdings.
The information set forth in "THE TENDER OFFER -- Section 7" ("Certain
Information Concerning Purchaser, Parent and Holdings") of the Offer to Purchase
and in Schedule I thereto is incorporated herein by reference.
(e) and (f) During the last five years, neither Purchaser, Parent nor
Holdings nor, to the best knowledge of Purchaser, Parent or Holdings, any of the
persons listed in Schedule I to the Offer to Purchase (i) has been convicted in
a criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) and (b) The information set forth in "THE TENDER OFFER -- Section 7"
("Certain Information Concerning Purchaser, Parent and Holdings"), "SPECIAL
FACTORS -- Background of the Transactions" and "SPECIAL FACTORS -- The Merger
Agreement and the Management Agreement" of the Offer to Purchase is incorporated
herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) and (b) The information set forth in "SPECIAL FACTORS -- Financing of
the Transactions" of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
5
<PAGE> 6
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the Introduction, "SPECIAL
FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- The Merger
Agreement and The Management Agreement" "SPECIAL FACTORS -- Purpose and
Structure of the Transactions", SPECIAL FACTORS -- Future Plans in Addition to
the Merger", "SPECIAL FACTORS -- Interests of Certain Persons in the
Transactions" and "SPECIAL FACTORS -- Effect of the Offer on the Market for the
Shares; Nasdaq Listing; Exchange Act Registration" of the Offer to Purchase is
incorporated herein by reference.
(f)-(g) The information set forth in "SPECIAL FACTORS -- Effect of the
Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration"
of the Offer to Purchase is incorporated herein by reference.
Except as contemplated by the Merger Agreement, the Tender Agreement, the
Stockholders Agreement and the Subscription and Tender Agreements, none of
Holdings, Parent and Purchaser has any plans or proposals which relate to or
would result in (x) the acquisition by any person of additional securities of
the Company or the disposition of securities of the Company, or (y) changes to
the Company's charter, bylaws or instruments corresponding thereto or other
action which may impede the acquisition of control of the Company by any person.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in the Introduction and "THE TENDER
OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and
Holdings") of and Schedule I to the Offer to Purchase is incorporated herein by
reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE
SUBJECT COMPANY'S SECURITIES.
The information set forth in the "THE TENDER OFFER -- Section 7" ("Certain
Information Concerning Purchaser, Parent and Holdings"), "SPECIAL
FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- The Merger
Agreement and the Management Agreement", "SPECIAL FACTORS -- Purpose and
Structure of the Transactions" and "SPECIAL FACTORS -- Future Plans in Addition
to the Merger" of the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and "THE TENDER
OFFER -- Section 11" ("Fees and Expenses") of the Offer to Purchase is
incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in "THE TENDER OFFER -- Section 7" ("Certain
Information Concerning Purchaser, Parent and Holdings") of the Offer to Purchase
is incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth in "SPECIAL FACTORS -- Interests of Certain
Persons in the Transactions" and "SPECIAL FACTORS -- The Merger Agreement and
the Management Agreement" is incorporated herein by reference.
(b) and (c) The information set forth in "THE TENDER OFFER -- Section 10"
("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is
incorporated herein by reference.
(d) The information set forth in "SPECIAL FACTORS -- Effect of the Offer on
the Market for the Shares; Nasdaq Listing; Exchange Act Registration" and "THE
TENDER OFFER -- Section 10" ("Certain Legal Matters and Regulatory Approvals")
of the Offer to Purchase is incorporated herein by reference.
6
<PAGE> 7
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase dated as of March 31, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter from the Information Agent to Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.
(a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Summary Advertisement as published on March 31, 1999.
(a)(8) Joint Press Release issued by Sheridan Healthcare, Inc. and
Vestar/Sheridan Holdings, Inc. on March 25, 1999.
(b)(1) Commitment Letter, dated March 24, 1999, to the Purchaser from
NationsBank, N.A. and NationsBanc Montgomery Securities LLC.
(c)(1) Agreement and Plan of Merger, dated as of March 24, 1999, by and
among Vestar/Sheridan Holdings, Inc., Vestar/Sheridan, Inc. and
Sheridan Healthcare, Inc.
(c)(2) Stockholders Agreement, dated as of March 24, 1999, among Parent,
the Company, Holdings, Gilbert Drozdow, Jay Martus, Michael
Schundler, Lewis Gold and Mitchell Eisenberg.
(c)(3) Confidentiality Agreement, dated as of December 1, 1998, by and
between Vestar Capital Partners III, L.P. and Sheridan Healthcare,
Inc.
(c)(4) Employment Agreement, dated as of March 24, 1999, between Mitchell
Eisenberg and the Company.
(c)(5) Employment Agreement, dated as of March 24, 1999, between Lewis
Gold and the Company.
(c)(6) Employment Agreement, dated as of March 24, 1999, between Michael
Schundler and the Company.
(c)(7) Employment Agreement, dated as of March 24, 1999, between Jay
Martus and the Company.
(c)(8) Subscription and Tender Agreement, dated as of March 24, 1999,
between Mitchell Eisenberg and Parent.
(c)(9) Subscription and Tender Agreement, dated as of March 24, 1999,
between Lewis Gold and Parent.
(c)(10) Subscription and Tender Agreement, dated as of March 24, 1999,
between Jay Martus and Parent.
(c)(11) Subscription and Tender Agreement, dated as of March 24, 1999,
between Michael Schundler and Parent.
(c)(12) Subscription and Tender Agreement, dated as of March 24, 1999,
between Parent and Gilbert Drozdow.
(c)(13) Tender Agreement, dated as of March 24, 1999, between Parent and
Robert Coward.
7
<PAGE> 8
(c)(14) Management Agreement, dated as of March 24, 1999, among Sheridan
Healthcare, Inc., Vestar/Sheridan Holdings, Inc. and Vestar Capital
Partners.
(c)(15) Guaranty Agreement dated as of March 24, 1999, between Vestar
Capital Partners III, L.P. and the Company.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
8
<PAGE> 9
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
VESTAR/SHERIDAN INVESTORS, LLC
By: VESTAR CAPITAL PARTNERS III,
L.P.,
------------------------------------
its Sole Member
By: VESTAR ASSOCIATES III,
L.P.,
------------------------------------
its General Partner
By: VESTAR ASSOCIATES CORPORATION
III
------------------------------------
its General Partner
By: /s/ JAMES L. ELROD, JR.
------------------------------------
Name: James L. Elrod, Jr.
Title: Vice President
VESTAR/SHERIDAN HOLDINGS, INC.
By: /s/ JAMES L. ELROD, JR.
------------------------------------
Name: James L. Elrod, Jr.
Title: President
VESTAR/SHERIDAN, INC.
By: /s/ JAMES L. ELROD, JR.
------------------------------------
Name: James L. Elrod, Jr.
Title: President
Date: March 31, 1999
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- - ------- ----------- ----
<C> <S> <C>
(a)(1) Offer to Purchase dated as of March 31, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter from the Information Agent to Brokers, Dealers,
Commercial Banks, Trust Companies and Nominees.
(a)(5) Letter to clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Summary Advertisement as published on March 31, 1999.
(a)(8) Joint Press Release issued by Sheridan Healthcare, Inc. and
Vestar/Sheridan Holdings, Inc. on March 25, 1999.
(b)(1) Commitment Letter, dated March 24, 1999, to the Purchaser
from NationsBank, N.A. and NationsBanc Montgomery Securities
LLC.
(c)(1) Agreement and Plan of Merger, dated as of March 24, 1999, by
and among Vestar/ Sheridan Holdings, Inc., Vestar/Sheridan,
Inc. and Sheridan Healthcare, Inc.
(c)(2) Stockholders Agreement, dated as of March 24, 1999, among
Parent, the Company, Holdings, Gilbert Drozdow, Jay Martus,
Michael Schundler, Lewis Gold and Mitchell Eisenberg.
(c)(3) Confidentiality Agreement, dated as of December 1, 1998, by
and between Vestar Capital Partners III, L.P. and Sheridan
Healthcare, Inc.
(c)(4) Employment Agreement, dated as of March 24, 1999, between
Mitchell Eisenberg and the Company.
(c)(5) Employment Agreement, dated as of March 24, 1999, between
Lewis Gold and the Company.
(c)(6) Employment Agreement, dated as of March 24, 1999, between
Michael Schundler and the Company.
(c)(7) Employment Agreement dated as of March 24, 1999, between Jay
Martus and the Company.
(c)(8) Subscription and Tender Agreement, dated as of March 24,
1999, between Mitchell Eisenberg and Parent.
(c)(9) Subscription and Tender Agreement, dated as of March 24,
1999, between Lewis Gold and Parent.
(c)(10) Subscription and Tender Agreement, dated as of March 24,
1999, between Jay Martus and Parent.
(c)(11) Subscription and Tender Agreement, dated as of March 24,
1999, between Michael Schundler and Parent.
(c)(12) Subscription and Tender Agreement, dated as of March 24,
1999, between Parent and Gilbert Drozdow.
(c)(13) Tender Agreement, dated as of March 24, 1999, between Parent
and Robert Coward.
(c)(14) Management Agreement, dated as of March 24, 1999, among
Sheridan Healthcare, Inc., Vestar/Sheridan Holdings, Inc.
and Vestar Capital Partners.
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- - ------- ----------- ----
<C> <S> <C>
(c)(15) Guaranty Agreement dated as of March 24, 1999, between
Vestar Capital
Partners III, L.P. and the Company.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK AND CLASS A COMMON STOCK
OF
SHERIDAN HEALTHCARE, INC.
AT
$9.25 NET PER SHARE
BY
VESTAR/SHERIDAN, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN HOLDINGS, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN INVESTORS, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON TUESDAY, APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A
NUMBER OF SHARES WHICH, TOGETHER WITH ANY SHARES OWNED BY PARENT OR PURCHASER,
OR ANY CONTROLLED AFFILIATE THEREOF, CONSTITUTES AT LEAST A MAJORITY OF THE
VOTING POWER (DETERMINED ON A FULLY-DILUTED BASIS), ON THE DATE OF PURCHASE, OF
ALL THE SECURITIES OF THE COMPANY ENTITLED TO VOTE GENERALLY IN THE ELECTION OF
DIRECTORS OR IN A MERGER (THE "MINIMUM CONDITION") AND (ii) (1) PURCHASER SHALL
HAVE RECEIVED FUNDING FOR THE OFFER SUFFICIENT TO PAY FOR ALL SHARES TENDERED
PURSUANT TO THE OFFER AND NOT VALIDLY WITHDRAWN AND TO PAY ALL FEES AND EXPENSES
RELATED TO THE OFFER AND OTHERWISE ON THE TERMS AND SUBJECT TO THE CONDITIONS
SET FORTH IN THE NATIONSBANK COMMITMENT LETTER (AS DEFINED IN THE MERGER
AGREEMENT) AND (2) THE PERMANENT FACILITIES (AS DEFINED IN THE MERGER AGREEMENT)
SHALL HAVE BEEN FULLY EXECUTED AND DELIVERED AND SHALL BE IN FULL FORCE AND
EFFECT AND ALL CONDITIONS TO FUNDING THEREUNDER THAT ARE REQUIRED TO BE, OR ARE
CAPABLE OF BEING, SATISFIED PRIOR TO THE PURCHASE OF SHARES PURSUANT TO THE
OFFER SHALL HAVE BEEN SATISFIED AND THERE IS NO REASON TO BELIEVE THAT ANY OF
THE OTHER CONDITIONS TO FUNDING UNDER THE PERMANENT FACILITIES WILL NOT BE
SATISFIED PRIOR TO THE TERMINATION OF THE MERGER AGREEMENT OR THE PERMANENT
FACILITIES (THE "FINANCING CONDITION").
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (EXCLUDING ABSTAINING
DIRECTORS WHO WOULD BE CONSIDERED "INTERESTED DIRECTORS" UNDER THE DGCL)
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING EACH OF THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST
INTERESTS OF THE HOLDERS OF SHARES, APPROVED THE MERGER AGREEMENT AND THE OFFER
AND THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, DECLARED THE
MERGER TO BE ADVISABLE AND RESOLVED TO RECOMMEND THAT THE HOLDERS OF THE SHARES
ACCEPT THE OFFER, TENDER THEIR SHARES TO PURCHASER AND ADOPT THE MERGER
AGREEMENT.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION IS UNLAWFUL.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (1) complete and sign the enclosed Letter of Transmittal
(or a facsimile thereof) in accordance with the instructions in the Letter of
Transmittal, mail or deliver the Letter of Transmittal (or such facsimile) and
any other required documents to American Stock Transfer & Trust Company (the
"Depositary"), and either deliver the certificates evidencing the tendered
Shares and any other required documents to the Depositary or tender such Shares
pursuant to the procedure for book-entry transfer set forth in "The Tender
Offer -- Section 3" ("Procedures for Tendering Shares") or (2) request such
stockholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such stockholder. Stockholders having Shares
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if they desire to tender Shares so registered.
A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
REPRESENTING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY
WITH THE PROCEDURE FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH
SHARES BY FOLLOWING THE PROCEDURES FOR GUARANTEED DELIVERY SET FORTH IN "THE
TENDER OFFER -- SECTION 3" ("PROCEDURES FOR TENDERING SHARES").
Questions and requests for assistance may be directed to Innisfree M&A
Incorporated (the "Information Agent") at its address and telephone number set
forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may also be obtained from the Information Agent or from brokers,
dealers, commercial banks or trust companies.
------------------------
March 31, 1999
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
INTRODUCTION................................................ 1
SPECIAL FACTORS............................................. 4
Background of the Transactions............................ 4
Recommendation of the Board of Directors; Fairness of the
Transactions........................................... 6
Opinions of the Financial Advisors........................ 8
Purpose and Structure of the Transactions................. 19
Appraisal Rights.......................................... 19
Certain Effects of the Transactions....................... 20
Future Plans in Addition to the Merger.................... 21
Interests of Certain Persons in the Transactions.......... 21
Financing of the Transactions............................. 25
The Merger Agreement and the Management Agreement......... 26
Certain Federal Income Tax Consequences................... 34
Effect of the Offer on the Markets for the Shares; Nasdaq
Listing; Exchange Act Registration..................... 35
THE TENDER OFFER............................................ 37
1. Terms of the Offer; Expiration Date................... 37
2. Acceptance for Payment and Payment for Shares......... 38
3. Procedure for Tendering Shares........................ 39
4. Withdrawal Rights..................................... 41
5. Price Range of Shares; Dividends...................... 42
6. Certain Information Concerning the Company............ 43
7. Certain Information Concerning Purchaser, Parent and
Holdings............................................... 45
8. Dividends and Distributions........................... 47
9. Certain Conditions of the Offer....................... 47
10. Certain Legal Matters and Regulatory Approvals........ 49
11. Fees and Expenses..................................... 51
12. Miscellaneous......................................... 51
</TABLE>
<TABLE>
<S> <C>
Annex A Opinion of Salomon Smith Barney Inc.
Annex B Opinion of Bowles Hollowell Conner
Schedule I. Financial Information from the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1998
Schedule II. Directors and Executive Officers of the Company
Schedule III. Directors and Executive Officers of Holdings, Parent and the
Purchaser
Schedule IV. Section 262 of the Delaware General Corporation Law
Schedule V. Agreement and Plan of Merger, dated as of March 24, 1999,
among Parent, the Purchaser and the Company
</TABLE>
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To the Stockholders of Sheridan Healthcare, Inc.
INTRODUCTION
Vestar/Sheridan, Inc., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of Vestar/ Sheridan Holdings, Inc., a Delaware corporation
("Parent") and a wholly owned subsidiary of Vestar/ Sheridan Investors, LLC, a
Delaware limited liability company ("Holdings"), hereby offers to purchase all
of the outstanding shares of Common Stock, par value $0.01 per share ("Common
Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common
Stock" and, together with the Common Stock, the "Shares"), of Sheridan
Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of
$9.25 per Share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in this Offer to Purchase and in
the related Letter of Transmittal (which, as amended from time to time, together
constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, subject to Instruction 6 of the Letter of Transmittal, stock
transfer taxes on the transfer and sale of Shares pursuant to the Offer.
Purchaser will pay all fees and expenses of American Stock Transfer & Trust
Company, which is acting as the Depositary (the "Depositary"), and Innisfree M&A
Incorporated, which is acting as the Information Agent (the "Information
Agent"), incurred in connection with the Offer. See "The Tender Offer -- Section
11" ("Fees and Expenses").
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), AT A MEETING
DULY CALLED AND HELD ON MARCH 24, 1999, HAS UNANIMOUSLY (EXCLUDING DIRECTORS WHO
WOULD BE CONSIDERED "INTERESTED DIRECTORS" UNDER SECTION 144 OF THE DELAWARE
GENERAL CORPORATION LAW (THE "DGCL") AND WHO ABSTAINED) (A) DETERMINED THAT THE
MERGER AGREEMENT (AS DEFINED BELOW) AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING EACH OF THE OFFER AND THE MERGER (AS DEFINED BELOW), ARE FAIR TO AND
IN THE BEST INTERESTS OF THE HOLDERS OF THE SHARES, (B) APPROVED THE MERGER
AGREEMENT AND THE OFFER AND THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED
THEREBY, (C) DECLARED THE MERGER TO BE ADVISABLE AND DIRECTED THAT THE MERGER BE
SUBMITTED FOR CONSIDERATION AT A SPECIAL MEETING OF THE STOCKHOLDERS OF THE
COMPANY, (D) RESOLVED TO RECOMMEND THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT
THE OFFER, TENDER THEIR SHARES TO PURCHASER THEREUNDER AND ADOPT THE MERGER
AGREEMENT AND (E) APPROVED THE MERGER AGREEMENT AND THE STOCKHOLDER DOCUMENTS
(AS DEFINED BELOW) AND THE TRANSACTIONS CONTEMPLATED THEREBY FOR PURPOSES OF
SECTION 203 OF THE DGCL.
The Company Board has received the written opinions of Salomon Smith Barney
Inc. ("Salomon Smith Barney") and Bowles Hollowell Conner ("Bowles Hollowell
Conner"), a division of First Union Capital Markets Corp., financial advisors to
the Company, that the consideration to be received by the holders of Shares
(other than Parent and its affiliates and the Executives referred to below)
pursuant to each of the Offer and the Merger is fair to such stockholders from a
financial point of view. A copy of the opinions of Salomon Smith Barney and
Bowles Hollowell Conner are attached hereto as Annexes A and B. The Salomon
Smith Barney and Bowles Hollowell Conner opinions should be read in their
entirety for the assumptions made, the procedures followed, the matters
considered and the limits of the review made by Salomon Smith Barney and Bowles
Hollowell Conner in connection with such opinions. The Salomon Smith Barney and
Bowles Hollowell Conner opinions were prepared for the Company Board and do not
constitute a recommendation to any stockholder as to whether to tender Shares
into the Offer. Salomon Smith Barney and Bowles Hollowell Conner were not
retained as advisors or agents to the Company's stockholders.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OF EACH
OF THE MINIMUM CONDITION AND THE FINANCING CONDITION. SEE "SPECIAL
FACTORS -- FINANCING OF THE TRANSACTIONS." IF PURCHASER PURCHASES AT LEAST THAT
NUMBER OF SHARES NEEDED TO SATISFY THE MINIMUM CONDITION, IT WILL BE ABLE TO
EFFECT THE MERGER WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER OF THE
COMPANY. SEE "SPECIAL FACTORS -- PURPOSE AND STRUCTURE OF THE TRANSACTIONS" AND
"THE TENDER OFFER -- SECTION 9" ("CERTAIN CONDITIONS OF THE OFFER").
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<PAGE> 4
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of March 24, 1999 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides, among other things, for the making of
the Offer by Purchaser, and further provides that, following the completion of
the Offer, upon the terms and subject to the conditions of the Merger Agreement
and in accordance with the DGCL, Purchaser will be merged into the Company (the
"Merger"). Following the Merger, the Company will continue as the surviving
corporation (the "Surviving Corporation") and become a wholly owned subsidiary
of the Parent, and the separate corporate existence of Purchaser will cease.
Six officers of the Company who own, as of the date hereof, approximately
7.2% (11.8% after giving effect to the exercise of their options to purchase
Common Stock at prices less than $9.25 per share) of the outstanding shares of
Common Stock of the Company (the "Executives") have agreed with Parent, among
other things, to tender their Shares into the Offer and vote their Shares in
favor of the adoption of the Merger Agreement and against any action or
agreement that would impede, interfere with, delay or prevent the purchase of
Shares pursuant to the Offer or the consummation of the Merger or would result
in a breach of any covenant, representation or warranty contained in the Merger
Agreement and five of the Executives also have agreed to purchase shares of
common stock of Parent ("Parent Common Stock") following the purchase of Shares
pursuant to the Offer (the "Tender Agreement" and the "Subscription and Tender
Agreements," respectively) and have executed a Stockholders Agreement with
Parent (the "Stockholders Agreement"). Four of the Executives also have entered
into new employment agreements with the Company which shall become effective
upon the purchase of Shares pursuant to the Offer (the "Employment Agreements"
and, together with the Tender Agreement, the Subscription and Tender Agreements
and the Stockholders Agreement, the "Stockholder Documents"). Parent has agreed
in the Tender Agreement and in the Subscription and Tender Agreements to grant
each of the Executives time and performance options upon the consummation of the
Merger. See "Special Factors -- Interests of Certain Persons in the
Transactions" for a discussion of the Stockholder Documents.
In accordance with the Merger Agreement, if required by law and its
Certificate of Incorporation and By-laws, the Company will convene a meeting of
its stockholders as soon as practicable following consummation of the Offer for
the purpose of adopting the Merger Agreement. The Company also has agreed to
include in any proxy or information statement required for such meeting the
unanimous recommendation of the Company Board that the stockholders of the
Company vote in favor of the adoption of the Merger Agreement and to otherwise
use its reasonable best efforts to obtain the necessary approval of the Merger
Agreement by the stockholders. See "Special Factors -- The Merger Agreement and
the Management Agreement."
At the effective time of the Merger (the "Effective Time"), each then
outstanding Share (other than Shares owned by Parent and its subsidiaries and
Shares held by stockholders who have not voted in favor of or consented to the
Merger and who have properly demanded appraisal of their Shares in accordance
with Section 262 of the DGCL (the "Dissenting Shares")) will be cancelled,
extinguished and converted into the right to receive $9.25 in cash, or any
higher price that may be paid pursuant to the Offer (the "Merger
Consideration"), payable to the holder thereof, without interest, upon surrender
of the certificate formerly representing such Shares, less any withholding taxes
required under applicable law.
The Company has represented to Purchaser and Parent that as of March 24,
1999, there were 6,290,178 shares of Common Stock and 296,638 shares of Class A
Common Stock outstanding, and 1,382,863 shares of Common Stock and no shares of
Class A Common Stock reserved for issuance upon the exercise of outstanding
stock options, warrants and other rights to acquire Shares. Based upon the
foregoing, Purchaser and Parent believe that 3,984,840 Shares would constitute a
majority of the voting power (determined on a fully-diluted basis), on the date
of purchase, of all the securities of the Company entitled to vote generally in
the election of directors or in a merger and would therefore satisfy the Minimum
Condition.
The Company has advised Purchaser and Parent that, to the knowledge of the
Company, all the directors and officers of the Company intend to tender their
Shares pursuant to the Offer.
The Merger Agreement is more fully described in "Special Factors -- The
Merger Agreement and the Management Agreement" and is attached hereto as
Schedule V. Certain federal income tax consequences of
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<PAGE> 5
the sale of the Shares pursuant to the Offer and the conversion of Shares into
the Merger Consideration pursuant to the Merger are described in "Special
Factors -- Certain Federal Income Tax Consequences".
For information concerning pending litigation against the Company and its
directors and an affiliate of Purchaser, Parent and Holdings seeking, among
other things, to enjoin the transactions contemplated by the Merger Agreement,
see "The Tender Offer -- Section 10" ("Certain Legal Matters and Regulatory
Approvals").
The Offer to Purchase includes information required to be disclosed
pursuant to Rule 13e-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which Rule governs so-called "going private" transactions
by certain issuers or their affiliates. Holdings, Parent and the Purchaser do
not concede as a result of providing such information or otherwise complying
with Rule 13e-3 that they (or any of their affiliates) are affiliates of the
Company or subject to the requirements of such Rule.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
3
<PAGE> 6
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTIONS
On August 5, 1998, the Company Board met to discuss various strategic
alternatives for the Company. At that time, because of the depressed market for
healthcare securities generally, and the current trading price of the Common
Stock in particular, the Company Board concluded that the Company would no
longer be able to pursue its acquisition growth strategy through the issuance of
Common Stock. The Company believed that to continue such a strategy would have
an undesired dilutive effect for the Company's stockholders. Consequently, the
Company Board instructed the Company's management to consider various means of
securing additional capital. On October 29, 1998 the Company publicly announced
that it had engaged Salomon Smith Barney and Bowles Hollowell Conner
(collectively, the "Financial Advisors") as its financial advisors to evaluate
the strategic alternatives available to the Company, including, among other
things, a possible recapitalization, a secondary offering of securities to the
public, a private placement of debt or equity securities, a stock repurchase and
a sale of the Company. After exploring various alternatives, the Financial
Advisors determined that they would solicit indications of interest in a
possible sale transaction from a select group of potential purchasers who the
Financial Advisors believed might be interested in acquiring the Company.
On December 1, 1998, executives of the Company met James L. Elrod, Jr. of
Vestar Capital Partners III, L.P., a Delaware limited partnership ("Vestar"),
for the first time at a health care conference. Throughout the day, Mr. Elrod
and the executives discussed their respective businesses and the executives
indicated the Company's willingness to enter into a transaction that would
enable the Company to continue its growth strategy. Vestar and the Company's
management thereafter considered a possible merger, recapitalization or similar
transaction. As the discussions between Vestar and the Company continued, the
Company and Vestar executed a confidentiality agreement dated as of December 1,
1998 (the "Confidentiality Agreement") pursuant to which the Company agreed to
provide Vestar with non-public information and Vestar agreed to treat such
information as confidential. Thereafter, in December, 1998, the Company directed
the Financial Advisors to provide Vestar with a copy of the Confidential
Information Memorandum which the Financial Advisors had prepared on behalf of
the Company.
Throughout December, 1998, Vestar and the Company were in frequent contact
discussing the Company's business and the possible structure of a transaction.
On December 15, 1998, Mr. Elrod visited the Company's headquarters in Hollywood,
Florida and met with Dr. Mitchell Eisenberg, the Chairman, President and Chief
Executive Officer of the Company, to discuss a possible transaction.
On January 7, 1999, Vestar submitted a preliminary, non-binding indication
of interest to Salomon Smith Barney that stated that Vestar would consider a
possible acquisition of the Company for a price of $11.00 to $13.00 per Share.
The Financial Advisors evaluated the price range which Vestar was considering
relative to the Company's then current trading price and determined that the
Company should continue negotiations with Vestar. Additionally, the Financial
Advisors considered Vestar's standing in the investment community, its track
record with respect to the companies in which it had made equity investments and
the capabilities of its partners and employees.
On January 18, 1999, Dr. Eisenberg and Dr. Lewis D. Gold, Executive Vice
President of the Company, met with James Elrod, Arthur J. Nagle and Daniel S.
O'Connell of Vestar to further discuss the Company's business. On January 27,
1999, the executive officers of the Company made a formal presentation to
Vestar's representatives. Vestar continued its business due diligence
investigation of the Company.
On February 12, 1999, Salomon Smith Barney requested by letter that Vestar
formally submit an offer to acquire the Company. On February 19, 1999, Vestar
submitted an offer to purchase for cash not less than 70% of the Company's
outstanding Shares in a recapitalization transaction structured as a one-step
merger at a price of $11.50 per Share, provided a sufficient number of Shares
were retained by the Company's existing stockholders to ensure that the
transaction would qualify for recapitalization accounting treatment. The offer
was subject to, among other things, Vestar's satisfactory completion of its due
diligence investigation of the
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<PAGE> 7
Company. Along with the letter, Vestar provided the Company with the written
comments of Vestar's outside legal counsel to the form of merger agreement
previously provided to Vestar and other bidders.
On February 19, 1999, the Company Board held a meeting to review various
proposals that had been obtained by the Financial Advisors. At this meeting, the
Company Board, after consultation with management, determined that, due to the
likelihood that management would continue with the Company following an
acquisition transaction, management might be presented with a potential conflict
of interest. Accordingly, it was agreed that Drs. Eisenberg and Gold, the only
members of management serving on the Company Board, would abstain from voting on
any proposal for the acquisition of the Company that was considered by the
Company Board. The Company's outside directors determined that Drs. Eisenberg's
and Gold's abstinence from voting on potential transactions would facilitate the
Company Board's independent judgment but requested that the management directors
participate in certain future discussions and be available to advise the Company
Board as it considered the various proposals. Because the three outside
directors would be the only directors voting on an acquisition proposal, the
Company Board determined that an independent committee of the Company Board was
unnecessary.
At its February 19, 1999 meeting, the Company Board determined that the
proposed recapitalization transaction from Vestar was the most attractive
proposal that it had received. Following discussions as to whether to pursue
negotiations with other potential acquirors, the Company Board determined that
pursuing an acquisition transaction exclusively with Vestar would be most likely
to benefit its stockholders' interests and achieve the Company's objectives.
On February 26, 1999, at the request of Vestar, the Company entered into an
exclusivity agreement with Vestar. Vestar had stated to the Company's
representatives that such an agreement was necessary in order to justify
Vestar's continued investment of time and financial resources in connection with
the transaction. The exclusivity agreement was subsequently extended on March 9,
1999 and during this period Vestar's legal, accounting, tax, insurance and other
advisers commenced their due diligence review of the Company and its operations.
The exclusivity agreement expired on March 15, 1999.
On February 27 and February 28, 1999, representatives of management, the
Financial Advisors and outside counsel to the Company commenced negotiations
with respect to a definitive acquisition agreement and related documentation
with representatives of Vestar and its outside legal counsel. In addition,
representatives of Vestar and its legal counsel began discussions with certain
members of management regarding employment with, and equity investments in,
Parent and the Company.
As discussions and negotiations with respect to the proposed transaction
continued, the Company Board met on March 2, 1999 to assess, among other items,
the status of negotiations and the likelihood of the completion of the
transaction on terms favorable to the Company's stockholders. The Company Board
reviewed in detail the proposed terms of the transaction and Vestar's
requirement that senior management invest in and remain employed by the Company
following the consummation of the transaction. After discussions with respect to
potential conflicts of interest, it was determined that the senior managers who
would participate in the transaction should obtain counsel separate from the
Company's outside legal counsel. In light of Vestar's insistence that its
obligation to consummate the transaction be conditioned upon satisfactory
employment agreements and equity investment agreements with management being
agreed upon, the Company Board also directed management to negotiate fully the
scope and terms of all such arrangements prior to such time as the Company Board
was asked to consider a definitive transaction.
During this time, Vestar continued to review the transaction and conduct
its due diligence review of the Company. Based on the results of Vestar's due
diligence review, Mr. Elrod telephoned Dr. Eisenberg on March 14, 1999 to tell
him that the results of Vestar's due diligence review did not support
consummating a transaction at a price of $11.50 per Share but that Vestar was
willing to consider a transaction at a price of approximately $9.00 per Share.
Robert L. Rosner of Vestar subsequently had discussions with the Financial
Advisors outlining the results of Vestar's due diligence review and Vestar's
rationale for proposing to reduce the per Share price that would be offered to
the Company's stockholders. After various discussions among Vestar, the
Company's management, the Financial Advisors and others, Vestar agreed to submit
in writing its revised proposal to consummate a merger transaction, at its
current price per Share of $9.25 and as it is
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<PAGE> 8
currently structured, and the Company's representatives agreed to present that
proposal to the Company Board for its consideration.
The Company's Board met on March 16, 1999 to review with the Company's
management and financial and legal advisors the terms and conditions of the
revised proposal. The Company Board queried the Company's management and the
Financial Advisors as to the likelihood that another suitor would pursue a
transaction with the Company on more favorable terms. The Financial Advisors
indicated that no other potential acquiror had expressed interest in the Company
to the extent that Vestar had and that, in their opinion, beginning the sale
process again or pursuing additional leads was unlikely to result in a proposal
that would be more adventageous to the Company's stockholders than Vestar's
revised proposal. In light of the timing of Vestar's proposed transaction,
Vestar's willingness to purchase all outstanding Shares and Vestar's willingness
to structure the transaction as a tender offer followed by a merger (which the
Company Board believed would be more expeditious than the structure originally
proposed), the Company Board instructed management to continue negotiations with
Vestar.
Negotiations regarding the terms of the Merger Agreement and the other
agreements contemplated thereby continued through March 24, 1999. That night the
Company Board held a meeting at which management indicated that the parties had
reached definitive agreements with respect to the transaction. The Company's
outside legal counsel, outside counsel for the Executives, and the Financial
Advisors each gave presentations to the Company Board. The Company Board also
received fairness opinions from each of the Company's Financial Advisors, which
were delivered orally and subsequently confirmed in writing. See "Opinions of
Financial Advisors."
Following discussions, the Company Board unanimously (excluding directors
who would be considered "interested directors" under Section 144 of the DGCL,
who abstained) determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair to, and in
the best interests of, the Company and its stockholders, approved the Merger
Agreement and the Offer and the Merger and the other transactions contemplated
thereby, declared the Merger to be advisable, directed that the Merger be
submitted for consideration at a special meeting of the stockholders of the
Company, resolved to recommend that the stockholders of the Company accept the
Offer, tender their Shares to Purchaser thereunder and adopt the Merger
Agreement, and approved the Merger Agreement and the Stockholder Documents and
the transactions contemplated thereby for purposes of Section 203 of the DGCL.
The Merger Agreement and the Stockholder Documents were executed and
delivered by the parties thereto following the meeting. A joint press release
was issued by the Company and Vestar the next morning announcing the
transaction.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE TRANSACTIONS.
The Company. At a meeting held on March 24, 1999, the Company Board
unanimously (with the interested directors abstaining) (i) determined that the
Offer and the Merger, taken together, are fair to and in the best interests of
the Company's stockholders, (ii) approved the Merger Agreement and the
transactions contemplated thereby, and (iii) decided to recommend to the
Company's stockholders that they accept the Offer and tender their Shares
pursuant to the Offer and adopt the Merger Agreement.
In reaching its conclusion, the Company Board considered a number of
factors, including the following:
1. The fact that Vestar's proposal represented the best offer received
by the Company Board after the Financial Advisors had contacted a select
group of potential purchasers who had been given an opportunity to receive
confidential information about the Company and either declined to submit a
proposal or submitted a proposal that the Company Board considered to be
less attractive to the Company's stockholders than the Vestar proposal.
2. The fact that the cash consideration that the Company's
stockholders would receive for each Share under the Vestar proposal was at
a premium to the Company's then current market price.
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<PAGE> 9
3. The fact that the Company Board had explored the possibility of
pursuing various other possible transactions that would secure the
necessary capital to finance future acquisitions in fulfillment of the
Company's growth strategy and no alternative transaction was as favorable
to the Company's stockholders as the Vestar proposal.
4. The Company's business, prospects, financial condition, current
business strategy and competitive position in the healthcare industry.
5. The presentations and fairness opinions of its Financial Advisors
described in "Special Factors -- Opinions of the Financial Advisors."
6. The terms and conditions of the Merger Agreement, including the
fact that the Offer is subject to various conditions, including the
Financial Condition, and that the Merger Agreement contemplates the payment
or reimbursement to Parent and Purchaser of certain fees and expenses
(including financing commitment fees and related expenses) and a
termination fee under certain circumstances . In analyzing the conditions
to this Offer, the Board of Directors considered, among other things, the
risks of failing to consummate the Offer and the Merger. In assessing the
expense payment and termination fee provision, the Board of Directors
recognized that its effect would be to increase by the amount of such fees
and expenses the cost of acquiring the Company by a third party other than
the Purchaser.
7. The nature of the financing commitments received by Parent and
Purchaser with respect to the Offer and the Merger, including the identity
of the institutions providing such commitments and their proven experience
in consummating transactions such as the Offer and the Merger and the
conditions to the obligations of such institutions to fund such
commitments, as well as the fact that consummation of the Offer and the
Merger will not be dependent on the ability of Parent and the Purchaser to
raise funds through the high yield debt or other securities market.
8. The likelihood of soliciting a firm offer from a third party to
acquire the Company at a price in excess of that to be paid in the Offer
and the Merger, the timing of the receipt of any such offer, and the
possible consequences of unsuccessfully seeking to solicit such an offer.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Company Board did not find it
practicable to, and did not, qualify or otherwise assign relative weights to the
individual factors considered in reaching its determinations. Because only the
disinterested directors of the Company voted on the Vestar proposal and because
of the engagement of the Financial Advisors and outside legal counsel by the
Company Board, the Company Board did not consider it necessary to retain an
unaffiliated representative to act solely on behalf of the unaffiliated
stockholders of the Company for the purpose of negotiating the terms of the
Merger Agreement. As discussed above, the Merger Agreement does not require the
transactions contemplated thereby to be approved by a majority of the
unaffiliated stockholders of the Company.
Purchaser, Parent and Holdings. Purchaser, Parent and Holdings regard the
acquisition of the Company as an attractive investment opportunity because they
believe that the Company's future business prospects are favorable. Although the
investment will involve a substantial risk to holders of Parent Common Stock,
Parent believes that the long-term value of the equity investment could
appreciate significantly. Purchaser, Parent and Holdings believe that the price
per share offered hereby and the Merger Consideration is fair to the Company's
stockholders. In reaching this conclusion, they have taken into consideration
the recent and historical prices of the Shares, see "The Tender Offer -- Section
5" ("Price Range of Shares; Dividends"), and their due diligence review of the
Company. Their conclusion as to the fairness of the Offer and the Merger also is
supported by the conclusions of the Company Board and by the fact that the terms
of the transactions were negotiated with the Company Board and its
representatives at a time when Purchaser, Parent and Holdings did not
beneficially own any Shares and after representatives of the Company had
solicited proposals to purchase the Company from third parties. Purchaser,
Parent and Holdings did not assign a particular weight to any one factor.
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OPINIONS OF THE FINANCIAL ADVISORS
Opinion of Bowles Hollowell Conner. Pursuant to an engagement letter dated
November 5, 1998 (the "Bowles Hollowell Conner Engagement Letter"), the Company
retained Bowles Hollowell Conner, a division of First Union Capital Markets
Corp., to act as its financial advisor in considering the Company's strategic
and financial alternatives for maximizing stockholder value, including the
possible sale of all or a portion of the Company. The Company had previously
retained Salomon Smith Barney Inc. to also act as its financial advisor. See
"Special Factors -- Background of the Transactions." Bowles Hollowell Conner is
a nationally recognized firm and, as part of its investment banking activities,
is regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The Company
selected Bowles Hollowell Conner as its financial advisor on the basis of Bowles
Hollowell Conner's experience and expertise in transactions similar to the Offer
and the Merger and its reputation in the healthcare industry.
In connection with the consideration by the Company Board of the merits of
the Offer and the Merger, Bowles Hollowell Conner was asked under the terms of
the Bowles Hollowell Conner Engagement Letter to perform various financial
analyses and deliver to the Company Board its opinion based on such analyses.
THE OPINION OF BOWLES HOLLOWELL CONNER WAS DIRECTED TO THE COMPANY BOARD
FOR ITS CONSIDERATION IN CONNECTION WITH THE PROPOSED OFFER AND MERGER, AND IS
DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS
OF SHARES FROM A FINANCIAL POINT OF VIEW AND IT DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER AGREEMENT NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF SHARES AS TO WHETHER THE OFFER OR THE MERGER IS IN SUCH HOLDER'S BEST
INTERESTS OR AS TO WHETHER HOLDERS OF SHARES SHOULD TENDER THEIR SHARES OR VOTE
FOR OR AGAINST THE MERGER. THE FULL TEXT OF SUCH WRITTEN OPINION OF BOWLES
HOLLOWELL CONNER DATED MARCH 24, 1999, IS ATTACHED HERETO AS ANNEX B AND SETS
FORTH CERTAIN IMPORTANT QUALIFICATIONS, ASSUMPTIONS MADE, MATTERS CONSIDERED,
AREAS OF RELIANCE ON OTHERS, AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH SUCH OPINION. THE SUMMARY DESCRIPTION OF SUCH OPINION SET FORTH
BELOW IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF THE OPINION ATTACHED
HERETO AS ANNEX B, AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ
CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THE TENDER OFFER MATERIAL.
In arriving at its opinion, Bowles Hollowell Conner, among other things,
(i) reviewed certain publicly available business and financial information
relating to the Company; (ii) reviewed certain other information, including
financial forecasts, provided to Bowles Hollowell Conner by the Company, and met
with the Company's management to discuss the business and prospects of the
Company; (iii) considered certain financial data of the Company and compared
that data with similar data for publicly held companies in businesses similar to
those of the Company; (iv) considered the financial terms of certain other
business combinations and other transactions which had recently been effected;
(v) reviewed the financial terms and conditions of the Merger Agreement; and
(vi) considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which Bowles
Hollowell Conner deemed relevant.
Based upon and subject to its review of the foregoing, its work described
below, its experience as investment bankers and other factors it deemed
relevant, but subject to the limitations set forth below and in reliance upon
the assumptions set forth below, Bowles Hollowell Conner provided the Company
Board with its opinion as investment bankers that as of the date of its opinion
(which was the date that Bowles Hollowell Conner presented its financial
analyses to the Company Board), the aggregate consideration to be received by
the holders of Shares (other than the Executives, as to whom Bowles Hollowell
Conner expressed no opinion) pursuant to the Offer and the Merger was fair to
such holders from a financial point of view.
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In connection with its opinion, Bowles Hollowell Conner made a presentation
to the Company Board on March 24, 1999 (the "Bowles Hollowell Conner
Presentation") as to the fairness of the Offer and the Merger based on the
foregoing analyses. A copy of the Bowles Hollowell Conner Presentation is filed
as Exhibit (b)(4) to the Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3") filed by Holdings, Parent, Purchaser, the Company and the Executives
with the Commission and incorporated herein by reference. The Bowles Hollowell
Conner Presentation is available for inspection and copying at the principal
executive offices of the Company during its regular business hours to any
stockholder or his representative who has been so designated in writing.
No limitations were imposed by the Company on Bowles Hollowell Conner with
respect to the investigations made or procedures followed in rendering its
opinion.
In connection with its review, Bowles Hollowell Conner did not assume any
obligation for independent verification of financial and other information
reviewed by it and relied on such information being accurate and complete in all
material respects. With respect to the financial forecasts for the Company
provided to Bowles Hollowell Conner by the Company's management, Bowles
Hollowell Conner assumed that the forecasts had been reasonably prepared on
bases reflecting the best available estimates and judgments of the Company's
management as to the future financial performance of the Company and that such
projections provided a reasonable basis upon which Bowles Hollowell Conner could
form its opinion. Bowles Hollowell Conner also assumed that there had been no
material changes in the Company's assets, financial condition, results of
operations, business or prospects since the dates of the last financial
statements made available to Bowles Hollowell Conner. Bowles Hollowell Conner
relied on advice of the counsel and the independent accountants to the Company
as to all legal and financial reporting matters with respect to the Company,
this Offer to Purchase, the Offer, the Merger and the Merger Agreement. Bowles
Hollowell Conner assumes that the Offer and the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended, the Exchange Act and all other applicable
federal and state statutes, rules and regulations. In addition, Bowles Hollowell
Conner did not assume responsibility for making an independent evaluation,
appraisal or physical inspection of any of the assets or liabilities (contingent
or otherwise) of the Company, nor was Bowles Hollowell Conner furnished with any
such appraisals. Finally, Bowles Hollowell Conner's opinion was based on
economic, monetary, market and other conditions as in effect on, and the
information made available to Bowles Hollowell Conner as of, the date of the
opinion (March 24, 1999). Accordingly, although subsequent developments may
affect its opinion, Bowles Hollowell Conner did not assume and does not have any
obligation to update, revise or reaffirm its opinion.
Bowles Hollowell Conner also assumed that the Offer and the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by the Company of any
of the conditions to its obligations thereunder. The terms of the Merger
Agreement and the conditions to the Company's obligations thereunder should be
reviewed and understood by holders of Shares in connection with their
consideration of the Offer and the Merger.
Set forth below is a brief summary of selected analyses presented by Bowles
Hollowell Conner to the Company Board on March 24, 1999 in connection with its
March 24, 1999 opinion described above.
Historical Stock Price Analysis
Bowles Hollowell Conner reviewed the trading performance of the Common
Stock for the period from November 1, 1995, to March 23, 1999, relative to the
performance of the Standard & Poor's 500 Index, the Russell 2000 Index, a
Multi-Specialty PPM Index and a Single Specialty PPM Index. The Multi-Specialty
and Single Specialty PPM Indexes were comprised of publicly traded
multi-specialty and single specialty physician practice management companies
that Bowles Hollowell Conner deemed to be similar to the Company. While the
Company provides both specialist physician and practice management services in
the areas of women's and children's health, Bowles Hollowell Conner regards the
Company as more comparable to multi-specialty physician practice management
organizations due to the number of specialist physician services it provides
within women's and children's health. The multi-specialty comparable companies
were MedPartners, Inc., Phycor, Inc., PhyMatrix Corp. and Promedco Management
Co. (collectively, the "Multi-
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Specialty Comparable Companies"). The single specialty comparable companies were
American Oncology Resources, Inc., American Physician Partners, Inc., AmeriPath,
Inc., Pediatrix Medical Group, Inc. and Physician Reliance Network, Inc.
(collectively, the "Single Specialty Comparable Companies"). Bowles Hollowell
Conner noted that during this period the price of the Company's Common Stock
declined 35%, while the Standard & Poor's 500 Index increased 116%, the Russell
2000 Index increased 29%, the Multi-Specialty Comparable Companies declined 86%
and the Single Specialty Comparable Companies declined 52%. Additionally, Bowles
Hollowell Conner noted that a significant amount of the price declines in the
Multi-Specialty and Single Specialty PPM Indexes has occurred since January 1,
1998. Bowles Hollowell Conner noted that during this period the price of the
Common Stock declined 46%, while the Standard & Poor's 500 Index increased 30%,
the Russell 2000 Index declined 12%, the Multi-Specialty Comparable Companies
declined 83% and the Single Specialty Comparable Companies declined 48%.
Comparable Company Analysis
Using publicly available information and information provided by the
Company, Bowles Hollowell Conner compared the historical financial and operating
performance of the Company with the corresponding performance of the
Multi-Specialty Comparable Companies and the Single Specialty Comparable
Companies. In comparing the Company's financial performance to that of the
Comparable Companies, Bowles Hollowell Conner made the following observations,
among others: (i) the Company had a latest twelve months' ("LTM") earnings
(loss) before interest, taxes, depreciation and amortization ("EBITDA") margin
of 16.9%, compared to median LTM EBITDA margins of 10.4% and 30.1%,
respectively, for the Multi-Specialty and Single Specialty Comparable Companies;
(ii) the Company had a LTM earnings (loss) before interest and taxes ("EBIT")
margin of 13.1%, compared to median LTM EBIT margins of 9.7% and 22.7%,
respectively, for the Multi-Specialty and Single Specialty Comparable Companies;
and (iii) the Company had a LTM net income margin of 5.6%, compared to median
LTM net income margins of 5.0% and 10.3%, respectively, for the Multi-Specialty
and Single Specialty Comparable Companies.
In order to arrive at an implied valuation for the Company, Bowles
Hollowell Conner calculated the adjusted market value, defined as aggregate
equity value plus debt and preferred stock less cash and cash equivalents
("Adjusted Market Value"), of the Comparable Companies as a multiple of (i) LTM
sales, (ii) LTM EBITDA and (iii) LTM EBIT. An analysis of the multiples of
Adjusted Market Value to LTM sales yielded a range of multiples from 0.3x to
0.7x for the Multi-Specialty Comparable Companies, with a median multiple of
0.5x, and a range of multiples from 1.1x to 2.3x for the Single Specialty
Comparable Companies, with a median multiple of 1.7x. An analysis of the
multiples of Adjusted Market Value to LTM EBITDA yielded a range of multiples
from 4.5x to 39.8x, with a median multiple of 5.0x (excluding the 39.8x high end
of the range) for the Multi-Specialty Comparable Companies and a range of
multiples from 5.6x to 7.4x, with a median multiple of 6.7x for the Single
Specialty Comparable Companies. An analysis of the multiples of Adjusted Market
Value to LTM EBIT yielded a range of multiples from 6.3x to 9.9x, with a median
multiple of 7.1x for the Multi-Specialty Comparable Companies and a range of
multiples from 7.3x to 10.1x, with a median multiple of 8.8x for the Single
Specialty Comparable Companies. Bowles Hollowell Conner noted that these
multiples could be compared to LTM sales, LTM EBITDA and LTM EBIT multiples
implied by the Merger Consideration of 1.3x, 7.7x and 10.0x, respectively, for
the Company. Bowles Hollowell Conner applied the median LTM Sales, LTM EBITDA
and LTM EBIT multiples for the Multi-Specialty and Single Specialty Comparable
Companies to the corresponding historical results of the Company to calculate
the implied Adjusted Market Value range and the implied equity value range for
the Shares ("Equity Value"). This analysis indicated an Adjusted Market Value
range for the Company of $94.9 million to $130.0 million and an implied Equity
Value range of $1.44 to $6.69 per Share. As noted above, Bowles Hollowell Conner
regards the Company as more comparable to multi-specialty physician practice
management organizations.
Comparable Acquisitions Analysis
Using publicly available information and certain other information and
estimates drived in the ordinary course of Bowles Hollowell Conner's business,
Bowles Hollowell Conner reviewed selected recent merger and
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acquisition transactions in the physician practice management industry. These
transactions included: Madison Dearborn/Cornerstone/Beecken Petty & Co.'s
acquisition of MedPartners Team Health Operations; American Oncology Resources,
Inc.'s acquisition of Physician Reliance Network, Inc.; an acquisition in which
Bowles Hollowell Conner acted as financial advisor and for which financial
information is not publicly available (the "Private Deal"); Phycor, Inc.'s
acquisition of First Physician Care; MedPartners, Inc.'s acquisition of Talbert
Medical Management; FPA Medical Management Inc.'s acquisition of Health
Partners, Inc.; CRA Managed Care's acquisition of Occusystems, Inc.;
MedPartners, Inc.'s acquisition of InPhynet Medical Management; FPA Medical
Management's acquisition of AHI Healthcare Systems, Inc.; and Physician Resource
Group's acquisition of American Opthalmic, Inc. (collectively, the "Comparable
Transactions"). Bowles Hollowell Conner compared the Adjusted Market Value of
the acquired companies as implied by the consideration paid in each such
transaction to the corresponding LTM Sales, LTM EBITDA and LTM EBIT for the
acquired companies at the time of transaction announcement. As physician
practice management company stock prices and forward earnings multiples have
declined particularly since early 1998, Adjusted Market Value to LTM Sales, LTM
EBITDA and LTM EBIT multiples have similarly declined. Thus, Bowles Hollowell
Conner believes acquisition transaction multiples since January 1, 1998 are more
relevant to the Company's proposed transaction. Multi-Specialty comparable
transactions since that time include Madison Dearborn/Cornerstone/Beecken Petty
& Co.'s acquisition of MedPartners' Team Health Operations and the Private Deal
while the only Single Specialty comparable transaction since that time was the
American Oncology Resources, Inc.'s acquisition of Physician Reliance Network,
Inc. Based on these comparable Multi-Specialty transactions, Adjusted Market
Value as a multiple of: (i) LTM Sales ranged from 0.4x to 0.6x with a median
value of 0.5x; (ii) LTM EBITDA ranged from 6.2x to 8.5x with a median value of
7.3x; and (iii) LTM EBIT was 7.5x. Based on the comparable Single Specialty
transaction, Adjusted Market Value as a multiple of: (i) LTM Sales was 1.8x;
(ii) LTM EBITDA was 9.3x; and (iii) LTM EBIT was 14.0x. Bowles Hollowell Conner
applied median LTM Sales, LTM EBITDA and LTM EBIT multiples for the Comparable
Transactions to the corresponding historical results of the Company, yielding an
implied Adjusted Market Value range for the Company of $111.1 million to $199.0
million and an implied Equity Value range of $3.87 to $16.99 per Share. As noted
above, Bowles Hollowell Conner regards the Company as more comparable to
multi-specialty physician practice management organizations.
No other company or transaction used in the comparable company analysis or
the comparable acquisitions analysis as a comparison is identical to the Company
or the Offer and the Merger. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies to which the Company and the Offer and the Merger are being
compared.
Earnings Impact Analysis
Based on the Company's results for fiscal year 1998, Bowles Hollowell
Conner analyzed the potential pro-forma earnings impact of an acquisition of the
Company by a potential acquiror assuming an all cash purchase. Bowles Hollowell
Conner calculated the maximum cash purchase price that an acquiror could pay
which would result in no earnings dilution for fiscal year 1998, assuming costs
of financing ranging from 7% to 8%. This analysis indicated an Adjusted Market
Value range for the Company of $127.3 million to $144.2 million and an Equity
Value range of $6.27 to $7.60 per Share at 8% and 7% cost of financing,
respectively.
Discounted Cash Flow Analysis
Bowles Hollowell Conner performed a discounted cash flow analysis to
estimate the present value of the projected unlevered free cash flows for the
Company based on the Company's projections (the "Base Case"). The Base Case
assumes that the Company grows through a combination of internal growth
initiatives and acquisitions. Internal growth initiatives include internal
hospital outsourcing contract growth, new hospital outsourcing contracts,
physician startups within existing multi-specialty physician group practices and
the addition of ancillary surgery centers. Acquisitions of hospital-based and
office-based physician practices are assumed to be completed within the
Company's integrated physician networks at multiples of 5.0x practice
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EBITDA in aggregate amounts of $60.0 million, $35.0 million, $40.0 million,
$50.0 million and $65.0 million for the years 1999 through 2003, respectively.
Based on the Base Case assumptions, Bowles Hollowell Conner calculated the
estimated future free cash flows that the Company would produce for the fiscal
years 1999 through 2003 and a terminal value of the Company at the end of the
forecasting period. The terminal value was computed by multiplying the Company's
year 2003 estimated EBITDA by a range of multiples between 5.5x and 6.5x, chosen
to reflect current acquisition multiples of comparable multi-specialty physician
practice management companies. The projected free cash flows and terminal values
were discounted using a range of discount rates of 9.3% to 13.3%, chosen to
reflect assumptions regarding the Company's cost of capital. This analysis
indicated an Adjusted Market Value range for the Company of $169.0 million to
$215.0 million and an implied Equity Value range of $12.45 to $19.35 per Share.
Sensitivity of Discounted Cash Flow Analyses
Bowles Hollowell Conner relied on the Company's Base Case to perform the
Discounted Cash Flow Analysis. These projections reflect the best judgments of
the Company's management as to the future financial performance of the Company
and include assumptions regarding the impact of the integration of internal
growth initiatives and acquired physician practices. The Company has projected
it will realize certain revenue growth from increased local market density of
integrated networks and certain economies of scale. For purposes of comparison
and to test the sensitivity of the Discounted Cash Flow Analysis to changes in
the Base Case, Bowles Hollowell Conner reviewed scenarios that assumed the
Company: (i) completed no practice acquisitions going forward, and due to lower
projected revenue and earnings growth rates relative to the Base Case, applied
EBITDA terminal multiples of 4.0x to 5.0x; and (ii) completed the internal
growth initiatives and acquisitions contemplated in the Base Case, however, the
Company acquired physician practices at a multiple of 6.0x practice EBITDA,
resulting in acquisitions in aggregate amounts of $72.0 million, $42.0 million,
$48.0 million, $60.0 million and $78.0 million for the years 1999 through 2003,
respectively. Bowles Hollowell Conner performed these selected sensitivity
analyses on the Company's Base Case. The Discounted Cash Flow Analysis based on
the no acquisitions scenario resulted in an Adjusted Market Value range for the
Company of $100.0 million to $117.0 million and an implied Equity Value range of
$2.18 to $4.80 per Share. The Discounted Cash Flow Analysis based on the 6.0x
EBITDA acquisition multiple scenario resulted in an Adjusted Market Value range
for the Company of $135.0 million to $179.0 million and an implied Equity Value
range of $7.41 to $14.05 per Share.
Leveraged Buyout Analysis
Bowles Hollowell Conner analyzed a series of scenarios involving
hypothetical recapitalizations of the Company. Each scenario provided for the
distribution of an amount of cash in respect of each Share. The analysis assumed
the Company's Base Case projections and a terminal value at the end of the
forecasting period. The terminal value was computed by multiplying the Company's
year 2003 estimated EBITDA by a range of multiples between 5.5x and 6.5x, chosen
to reflect current acquisition multiples of comparable multi-specialty physician
practice management companies. The analyses assumed leverage levels appropriate
for physician practice management companies. Based on these and other
assumptions, an offer of $9.25 per Share could produce an internal rate of
return in the range of 25% to 30% over a five year period. Bowles Hollowell
Conner analyzed these scenarios in light of various factors affecting the
feasibility of a leveraged buyout of the Company.
Healthcare LBO Premium Analysis
Bowles Hollowell Conner reviewed the consideration paid in U.S. healthcare
leveraged buyouts announced since May 7, 1996. Bowles Hollowell Conner
calculated the premiums paid in those transactions over: (i) the acquired
entity's applicable stock price one day prior to either the announcement of the
acquisition offer or the announcement by the acquired entity of information
relating to a possible corporate transaction, including its intention to
evaluate its strategic alternatives ("unaffected price"), (ii) the acquired
entity's 52-week high trading value as of the announcement date; (iii) the
acquired entity's 52-week low trading value as of the announcement date; and
(iv) the acquired entity's applicable stock price one day prior
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to announcement of the acquisition offer ("affected price"). Seven transactions
were reviewed and the following premium ranges were observed: premium of offer
price to unaffected price, 15.2% to 88.2%; premium of offer price to 52-week
high, (52.9)% to 4.2%; premium of offer price to 52-week low, 53.5% to 170.9%;
and premium of offer price to affected price, 11.0% to 88.2%. The Bowles
Hollowell Conner analysis indicated that the consideration to be paid pursuant
to the Offer was 41.0% above the unaffected price, 47.1% below the 52-week high,
42.3% above the 52-week low and 12.1% above the price of the Company's stock as
of the close of business on March 22, 1998.
While the foregoing summary describes all analyses and examinations that
Bowles Hollowell Conner deemed material to the preparation of its opinion to the
Company Board, it does not purport to be a comprehensive description of all
analyses and examinations actually conducted by Bowles Hollowell Conner. The
preparation of a fairness opinion necessarily is not susceptible to partial
analysis or summary description; and selecting portions of the analyses and of
the factors considered by Bowles Hollowell Conner, without considering all
analyses and factors, would create an incomplete view of the process underlying
the analyses set forth in the presentation of Bowles Hollowell Conner to the
Company Board on March 24, 1999. In addition, Bowles Hollowell Conner may have
given some analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions. Accordingly,
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Bowles Hollowell Conner's view of the actual value of
the Company or the Shares. To the contrary, Bowles Hollowell Conner expressed no
opinion on the actual value of the Company or the Shares, and its opinion that
is addressed and limited to the Company Board extends only to the belief
expressed by Bowles Hollowell Conner that the immediate value to holders of
Shares (other than the Executives, as to whom Bowles Hollowell Conner expressed
no opinion), from a financial point of view under the Offer and the Merger, is
within the range of values that might fairly be ascribed to the Shares as of the
date of the opinion of Bowles Hollowell Conner (March 24, 1999), and as of the
date of the Company Board's consideration of the Offer and the Merger (March 24,
1999). At the time of the delivery of its oral opinion, Bowles Hollowell Conner
provided a draft form of opinion that was the same in all material respects as
the executed opinion later provided to the Company Board.
In performing its analyses, Bowles Hollowell Conner made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Company. The analyses performed by Bowles Hollowell Conner are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than those suggested by such analyses. Such analyses were
prepared solely as part of Bowles Hollowell Conner's analysis for the Company
Board of the fairness of the Offer and the Merger to the holders of Shares from
a financial point of view, and were provided solely to the Company Board in
connection with the Company Board's consideration of the Offer and the Merger.
The analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at any time in the future. Bowles Hollowell Conner used in its analyses various
projections of future performance prepared by the management of the Company. The
projections are based on numerous variables and assumptions which are inherently
unpredictable and must be considered not certain or accurate as projected.
Accordingly, actual results could vary significantly from those set forth in
such projections.
As described above, the opinion of Bowles Hollowell Conner and the Bowles
Hollowell Conner Presentation summarized above were presented to the Company
Board. Bowles Hollowell Conner, however, does not make any recommendation to
holders of Shares (or to any other person or entity) as to whether such
stockholders should tender their Shares pursuant to the Offer or vote for or
against the Merger.
Pursuant to the Bowles Hollowell Conner Engagement Letter, the Company
agreed to pay Bowles Hollowell Conner (i) an opinion fee of $60,000 upon the
delivery of its opinion described above and (ii) a transaction fee payable upon
consummation of the Offer and the Merger (or another transaction) equal to 40%
of 1.0% of up to $100 million of the total proceeds payable to holders of Shares
and Company Options pursuant to the Offer and the Merger and (y) 1.5% of any
such proceeds in excess of $100 million. The opinion fee will be credited
against the transaction fee payable to Bowles Hollowell Conner if the Merger is
effected. The Company will be obligated to pay the Transaction Fee only if the
Offer and the Merger (or
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another transaction) are consummated. Accordingly, the payment of a substantial
majority of Bowles Hollowell Conner's total fee is subject to the consummation
of the Offer and the Merger. The Bowles Hollowell Conner Engagement Letter also
calls for the Company to reimburse Bowles Hollowell Conner for its reasonable
out-of-pocket expenses and for the Company to indemnify Bowles Hollowell Conner,
its affiliates, and their respective directors, agents, employees and
controlling persons against certain liabilities, including liabilities under the
federal securities laws, relating to or arising out of Bowles Hollowell Conner's
engagement. Bowles Hollowell Conner and its affiliates may maintain business
relationships with the Company, Holdings, Parent, other bidders for the Company
and their respective affiliates.
In the ordinary course of business, Bowles Hollowell Conner or its
affiliates may actively trade the debt and equity securities of the Company,
Holdings, Parent, other bidders for the Company or their respective affiliates
for its or any such affiliate's own account or for the account of customers and,
accordingly, may hold a long or short position in such securities. In addition,
Bowles Hollowell Conner and its affiliates in the past may have provided
investment and commercial banking products and services for the Company,
Holdings, Parent, other bidders for the Company, their respective affiliates and
other related persons. Bowles Hollowell Conner is not affiliated with the
Company, Holdings or Parent.
Opinion of Salomon Smith Barney Salomon Smith Barney Inc. has acted as a
Financial Advisor to the Company in connection with the Offer and the Merger. On
March 24, 1999, Salomon Smith Barney stated to the Company Board its oral
opinion as investment bankers that, as of such date and based upon and subject
to the factors and assumptions set forth in its presentation, the consideration
to be received by the holders of Shares (other than Parent and its affiliates
and the Executives) (the "Public Stockholders") was fair, from a financial point
of view, to the Public Stockholders. Such opinion was subsequently confirmed in
a written opinion dated March 24, 1999.
The opinion and presentation of Salomon Smith Barney to the Company Board,
in connection with which Salomon Smith Barney was requested to evaluate the
fairness from a financial point of view of the consideration to the Public
Stockholders, was only one of many factors taken into consideration by the
Company Board in making its determination to approve the Merger Agreement. The
terms of the Merger were determined through negotiations between the Company and
Vestar and were approved by the Company Board.
THE FULL TEXT OF SALOMON SMITH BARNEY'S OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY SALOMON SMITH BARNEY, IS ATTACHED TO
THIS DOCUMENT AS ANNEX A. SALOMON SMITH BARNEY'S OPINION SHOULD BE READ
CAREFULLY AND IN ITS ENTIRETY. IT IS DIRECTED ONLY TO THE COMPANY BOARD AND
RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE RECEIVED BY THE PUBLIC STOCKHOLDERS AND DOES NOT ADDRESS THE
COMPANY'S UNDERLYING BUSINESS DECISION TO EFFECT THE OFFER AND THE MERGER OR
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES AS TO WHETHER SUCH
STOCKHOLDER SHOULD TENDER SHARES INTO THE OFFER OR AS TO HOW SUCH HOLDER SHOULD
VOTE WITH RESPECT TO THE MERGER. THE SUMMARY OF SALOMON SMITH BARNEY'S OPINION
SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION.
In connection with rendering its opinion, Salomon Smith Barney, among other
things:
- reviewed the March 23, 1999 draft of the Merger Agreement, in the form
provided to Salomon Smith Barney, and assumed that the final form of such
agreement would not vary in any respect that is material to Salomon Smith
Barney's analysis;
- reviewed certain publicly available business and financial information
relating to the Company that Salomon Smith Barney deemed relevant;
- reviewed certain other information, primarily financial in nature,
provided to Salomon Smith Barney by the Company relating to the Company's
business, including certain financial forecasts;
- reviewed certain publicly available information with respect to certain
other companies that Salomon Smith Barney believed to be comparable to
the Company and the trading markets for such other companies' securities;
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- reviewed and analyzed certain publicly available information concerning
the trading of, and the trading market for, the Common Stock;
- reviewed certain publicly available information concerning the nature and
terms of certain other transactions that Salomon Smith Barney deemed to
be relevant to Salomon Smith Barney's inquiry;
- considered and took into account the Company's lack of, and likely
difficulty in raising, adequate capital to fund its growth and
acquisition plans if the Offer and the Merger were not effected;
- discussed with certain officers and employees of the Company and Vestar
the foregoing, as well as other matters Salomon Smith Barney believed
relevant to its inquiry, and
- considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria as Salomon
Smith Barney deemed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for Salomon Smith
Barney, or publicly available. With respect to the Company's financial
forecasts, Salomon Smith Barney was advised by management of the Company and
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments on the part of the management of the
Company, as to the future financial performance of the Company. Salomon Smith
Barney expressed no view as to such forecasts or the assumptions on which they
are based. Salomon Smith Barney did not assume any responsibility for making or
obtaining any independent evaluations or appraisals of the Company, nor for
conducting a physical inspection of, the properties and facilities of the
Company. The Salomon Smith Barney opinion was necessarily based upon market,
economic and other conditions as they existed and could be evaluated on March
24, 1999, and Salomon Smith Barney assumed no responsibility to update or revise
their opinion based upon circumstances or events occurring after March 24, 1999.
For purposes of rendering its opinion, Salomon Smith Barney assumed, in all
respects material to its analysis, that the representations and warranties of
each party contained in the Merger Agreement were true and correct, that each
party would perform all of the covenants and agreements required to be performed
by it under the Merger Agreement, and that all conditions to the consummation of
the Merger would be satisfied without waiver thereof. Salomon Smith Barney also
assumed that all material governmental, regulatory or other consents and
approvals would be obtained and that in the course of obtaining any necessary
governmental, regulatory or other consents and approvals, or any amendments,
modifications or waivers to any documents to which either the Company or
Holdings is a party, as contemplated by the Merger Agreement, no restrictions
would be imposed, or amendments, modifications or waivers made that would have
any material adverse effect on the contemplated benefits of the Merger.
The preparation of financial analyses and fairness opinions is a complex
process involving subjective judgments with respect to, among other things,
appropriate comparable companies and transactions, appropriate multiples of
various selected financial data, appropriate discount rates and other financial
and other factors and is not necessarily susceptible to partial analysis or
summary description. Salomon Smith Barney made no attempt to assign specific
weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of the analyses and
factors considered. Accordingly, Salomon Smith Barney believes that its analyses
(and the summary set forth above) must be considered as a whole, and that
selecting portions of such analyses and of the factors considered by Salomon
Smith Barney, without considering all of such analyses and factors, could create
a misleading or incomplete view of the processes underlying the analyses
conducted by Salomon Smith Barney and its opinion.
With regard to the comparable company analysis summarized below, Salomon
Smith Barney selected comparable companies on the basis of various factors,
including the size of the company and similarity of the line of business;
however, no company utilized as a comparison in such analysis is identical to
the Company, any business segment of the Company or the Merger. As a result,
these analyses are not purely mathematical, but also take into account
differences in financial and operating characteristics of the comparable
companies
15
<PAGE> 18
and other factors that could affect the value of the comparable companies and
transactions to which the Company and the Merger are being compared.
In its analyses, Salomon Smith Barney made numerous assumptions with
respect to the Company, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of the Company. Any estimates contained in Salomon Smith Barney's analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Salomon Smith Barney's analyses were prepared solely as part of Salomon
Smith Barney's analysis of the fairness of the consideration to the Public
Stockholders and were provided to the Company Board in that connection.
The projections furnished to Salomon Smith Barney and used in formulating
Salomon Smith Barney's opinion were provided to Salomon Smith Barney, in
connection with the review of the Merger, by the management of the Company. The
projections were based on numerous variables and assumptions which are
inherently uncertain, including, without limitation, factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in such projection.
THE FOLLOWING IS A SUMMARY OF THE MATERIAL FINANCIAL ANALYSES USED BY
SALOMON SMITH BARNEY IN CONNECTION WITH PROVIDING ITS OPINION TO THE COMPANY
BOARD. IT DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE ANALYSES
PERFORMED BY SALOMON SMITH BARNEY OR OF ITS PRESENTATION TO THE COMPANY BOARD.
THE SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR
FORMAT. IN ORDER TO FULLY UNDERSTAND THE FINANCIAL ANALYSES USED BY SALOMON
SMITH BARNEY, THE TABLES MUST BE READ WITH THE TEXT OF EACH SUMMARY. THE TABLES
ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. In
conducting its analyses, Salomon Smith Barney assumed that total debt and Shares
outstanding were as at March 19, 1999, that excess cash was not available and
that no acquisition expenditures were incurred in the first quarter of 1999.
Comparable Company Analysis. Using publicly available information, Salomon
Smith Barney compared the Company to the following five multispecialty physician
practice management companies: Advanced Health Corporation, MedPartners, Inc.,
PhyCor, Inc., PhyMatrix Corporation and ProMedCo Management based on various
measures of performance. Salomon Smith Barney noted that the Company's market
value as a multiple of 1998 net income was 10.6x, compared with a median of 7.1x
for the selected group. Salomon Smith Barney also noted that the Company's
market value as a multiple of estimated 1999 net income and estimated 2000 net
income was 8.6x and 7.4x, respectively, compared with a median of 7.3x and 5.5x,
respectively, for the selected group.
<TABLE>
<CAPTION>
MARKET VALUE AS MULTIPLE OF:
----------------------------------
1998 1999 2000
NET ESTIMATED ESTIMATED
INCOME NET INCOME NET INCOME
------ ---------- ----------
<S> <C> <C> <C>
Company..................................................... 10.6x 8.6x 7.4x
Median for Multispecialty Group............................. 7.1x 7.3x 5.5x
Premium (Discount) to Multispecialty Median................. 49.1% 18.1% 33.6%
</TABLE>
Salomon Smith Barney also calculated multiples of adjusted market value to
last twelve months net revenues, to last twelve months earnings before interest,
taxes, depreciation and amortization and to last twelve months earnings before
interest and taxes. The multiple of adjusted market value to last twelve months
net revenues for the Company was 1.2x compared with a median of 0.4x for the
selected group. The multiple of adjusted market value to last twelve months
earnings before interest, taxes, depreciation and amortization for the Company
was 7.3x compared with a median of 4.8x for the selected group. The multiple of
adjusted market value to last twelve months earnings before interest and taxes
for the Company was 9.5x compared with a median of 7.1x for the selected group.
16
<PAGE> 19
<TABLE>
<CAPTION>
ADJUSTED MARKET VALUE(1) AS MULTIPLE OF:
-----------------------------------------
LTM NET REVENUE LTM EBITDA LTM EBIT
--------------- ---------- --------
<S> <C> <C> <C>
Company........................................... 1.2x 7.3x 9.5x
Median for Multispecialty Group(2)................ 0.4x 4.8x 7.1x
Premium (Discount) to Multispecialty Median....... 198.7% 52.2% 33.9%
</TABLE>
- - ---------------
(1) Adjusted market value equals fully diluted market value plus outstanding
debt minus cash.
(2) MedPartners, Inc. was excluded from the EBITDA and EBIT median calculation
because of its announced plan to exit the physician practice management
business.
Salomon Smith Barney also compared the Company to the following five single
specialty physician practice management companies: American Oncology Resources,
American Physician Partners, AmeriPath, Inc., Pediatrix Medical Group and
Response Oncology, Inc. based on various measures of performance. Salomon Smith
Barney noted that the Company's market value as a multiple of 1998 net income
was 10.6x, compared with a median of 8.6x for the selected group. Salomon Smith
Barney also noted that the Company's market value as a multiple of estimated
1999 net income and estimated 2000 net income was 8.6x and 7.4x, respectively,
compared with a median of 7.4x and 6.2x, respectively, for the selected group.
<TABLE>
<CAPTION>
MARKET VALUE AS MULTIPLE OF:
----------------------------------------------------------
1998 1999 2000
NET INCOME ESTIMATED NET INCOME ESTIMATED NET INCOME
---------- -------------------- --------------------
<S> <C> <C> <C>
Company.................................... 10.6x 8.6x 7.4x
Median for Single Specialty Group.......... 8.6x 7.4x 6.2x
Premium (Discount) to Single Specialty
Median................................... 23.4% 16.9% 18.8%
</TABLE>
Salomon Smith Barney also calculated multiples of adjusted market value to
last twelve months net revenues, to last twelve months earnings before interest,
taxes, depreciation and amortization and to last twelve months earnings before
interest and taxes. The multiple of adjusted market value to last twelve months
net revenues for the Company was 1.2x compared with a median of 1.5x for the
selected group. The multiple of adjusted market value to last twelve months
earnings before interest, taxes, depreciation and amortization for the Company
was 7.3x compared with a median of 6.4x for the selected group. The multiple of
adjusted market value to last twelve months earnings before interest and taxes
for the Company was 9.5x compared with a median of 8.5x for the selected group.
<TABLE>
<CAPTION>
ADJUSTED MARKET VALUE(1) AS MULTIPLE OF:
-----------------------------------------
LTM NET REVENUE LTM EBITDA LTM EBIT
--------------- ---------- --------
<S> <C> <C> <C>
Company........................................... 1.2x 7.3x 9.5x
Median for Single Specialty Group................. 1.5x 6.4x 8.5x
Premium (Discount) to Single Specialty Median..... (18.7%) 14.3% 11.7%
</TABLE>
- - ---------------
(1) Adjusted market value equals fully diluted market value plus outstanding
debt minus cash.
Discounted Cash Flow Valuation of the Company. Using a discounted cash
flow methodology, Salomon Smith Barney calculated a range of firm values of the
Company as of March 22, 1999 based on the estimated unlevered free cash flows
that the Company could produce on a stand-alone basis, which includes
management's projected acquisitions at a 5.0x EBITDA purchase price, at a 6.0x
EBITDA purchase price and at a 7.0x EBITDA purchase price, in each case over the
five-year period from fiscal year 1999 through fiscal year 2003. Salomon Smith
Barney also calculated a range of firm values based on the estimated unlevered
free cash flows that the Company could produce on a stand-alone basis, excluding
management's projected acquisitions, over the five-year period from fiscal year
1999 through fiscal year 2003.
Salomon Smith Barney discounted these cash flows by a range of discount
rates representing the weighted average cost of capital from 10% to 11%. Salomon
Smith Barney calculated firm values as of March 22, 1999 based on discount rates
from 10.3% to 10.8%. These calculations resulted in firm values ranging (i) from
$187 million to $218 million using projections provided by the Company's
management
17
<PAGE> 20
which included projected acquisitions at a 5.0x purchase price; (ii) from $149
million to $180 million using projections provided by the Company's management
which included projected acquisitions at a 6.0x purchase price; (iii) from $111
million to $142 million using projections provided by the Company's management
which included projected acquisitions at a 7.0x purchase price; and (iv) from
$110 million to $121 million using projections provided by the Company's
management which excluded projected acquisitions. These correspond to a range of
implied per share equity values (i) from approximately $15.00 to $19.50; (ii)
from approximately $9.50 to $14.00; (iii) from approximately $4.00 to $8.50; and
(iv) from approximately $3.75 to $5.50, respectively.
<TABLE>
<CAPTION>
IMPLIED PER SHARE
IMPLIED FIRM VALUE(1) EQUITY VALUE
--------------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Based on Management Projections (including management's
projected acquisitions at 5.0x EBITDA)................ $187 - $218 $14.99 to $19.56
Based on Management Projections (including management's
projected acquisitions at 6.0x EBITDA)................ $149 - $180 $ 9.50 to $14.02
Based on Management Projections (including management's
projected acquisitions at 7.0x EBITDA)................ $111 - $142 $ 4.02 to $ 8.48
Based on Management Projections (excluding projected
acquisitions)......................................... $110 - $121 $ 3.83 to $ 5.47
</TABLE>
- - ---------------
(1) Firm value equals equity value plus debt and contingencies of $85.2 million
less option proceeds of $2.0 million.
Implied Private Market Valuation of the Company. Salomon Smith Barney
derived an implied private market valuation for the Company based on the
Company's 1998 revenues and earnings before interest, taxes, depreciation and
amortization according to management data. Salomon Smith Barney reviewed
publicly available information regarding 9 selected merger transactions in the
physician practice management industry. The median transaction values as
multiples of last twelve month revenues and last twelve months earnings before
interest, taxes, depreciation and amortization in the three transactions
occurring since October, 1997 were 1.5x and 6.0x, respectively.
Salomon Smith Barney applied a range of multiples of 1.2x to 1.5x to 1998
revenues, resulting in a range of implied equity value per Share of $7.58 to
$12.48. Salomon Smith Barney applied a range of multiples of 6.0x to 9.0x to
1998 earnings before interest, taxes, depreciation and amortization, resulting
in a range of implied equity value per Share prices of $4.58 to $12.89.
<TABLE>
<CAPTION>
IMPLIED EQUITY
VALUE PER SHARE(1)
------------------
<S> <C>
Based on 1998 Revenues.................................... $7.58 - $12.48
Based on 1998 EBITDA...................................... $4.58 - $12.89
</TABLE>
- - ---------------
(1) Equity value per Share reflects 6.916 million diluted Shares.
Salomon Smith Barney is an internationally recognized investment banking
firm that regularly engages in the valuation of companies and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities, and
corporate, estate and other purposes. The Company retained Salomon Smith Barney
as a financial advisor because of its reputation, expertise in the valuation of
companies and substantial experience in transactions such as the Merger.
In the past Salomon Smith Barney has rendered certain investment banking
services to the Company for which it has been paid fees. Pursuant to an
engagement letter dated October 9, 1998, the Company agreed to pay Salomon Smith
Barney (i) an opinion fee of $90,000 upon the delivery of its opinion and (ii) a
transaction fee payable upon consummation of the Merger equal to 60% of (x) 1.0%
of up to $100 million of the total proceeds payable to holders of Shares and
Company Options in the Offer and the Merger and (y) 1.5% of any
18
<PAGE> 21
such proceeds in excess of $100 million. Any opinion fee paid will be credited
against the transaction fee. Additionally, the Company has agreed to reimburse
Salomon Smith Barney for reasonable out-of pocket expenses, including, without
limitation, fees and expenses of Salomon Smith Barney's legal counsel and agreed
to indemnify Salomon Smith Barney and certain related persons against certain
liabilities, including liabilities under the federal securities laws, related to
or arising out of its engagement. In the ordinary course of business, Salomon
Smith Barney or its affiliates may actively trade the securities of the Company
for its own account and for the accounts' of its customers and, accordingly, at
any time may hold a long or short position in such securities. Salomon Smith
Barney and its affiliates (including Citigroup Inc. and its affiliates) may have
other business and financial relationships with the Company and Holdings.
PURPOSE AND STRUCTURE OF THE TRANSACTIONS.
The purpose of the Merger Agreement and the transactions contemplated
thereby is to acquire control of, and the entire equity interest in, the
Company. The Offer is being made pursuant to the Merger Agreement in order to
more promptly transfer ownership of Shares to the Purchaser. As promptly as
practicable following consummation of the Offer and after satisfaction or waiver
of all conditions to the Merger set forth in the Merger Agreement, Purchaser
intends to acquire the remaining equity interest in the Company not acquired in
the Offer by consummating the Merger.
As described above, the Company Board has approved the Merger and the
Merger Agreement in accordance with the DGCL and rendered inapplicable the
restrictions on mergers contained in Section 203 of the DGCL. Except in the case
described in the next sentence, the Company Board will be required to submit the
Merger Agreement to the Company's stockholders for adoption at a stockholders'
meeting convened for that purpose in accordance with the DGCL. However, if the
Purchaser acquires more than 90% of the outstanding Shares, the Purchaser
intends to effect the Merger without a meeting of the Company's stockholders
under Section 253 of the DGCL. If the Purchaser cannot effect the Merger
pursuant to Section 253 of the DGCL and stockholder approval is required, under
the DGCL and the Company's Certificate of Incorporation the Merger Agreement
must be adopted by the affirmative vote of holders of a majority of the
outstanding shares of Common Stock. If required, the Company has agreed to
convene a meeting of its stockholders as soon as practicable following the
consummation of the Offer for the purpose of adopting the Merger Agreement and
to include in any proxy or information statement required for such meeting the
unanimous recommendation of the Company Board that the Company's stockholders
vote in favor of the adoption of the Merger Agreement. If the Minimum Condition
is satisfied, the Purchaser will have the power, which it intends to exercise,
to approve the Merger Agreement without the affirmative vote or written consent
of any other stockholder.
THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY,
CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO ANY MEETING OF THE COMPANY'S
STOCKHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY SUCH SOLICITATION, IF REQUIRED,
WHICH THE PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY
MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(a) OF THE EXCHANGE
ACT.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE MINIMUM CONDITION
BEING SATISFIED.
Following the consummation or termination of the Offer, Purchaser or one of
its affiliates may seek to acquire additional Shares through open market
purchases, privately negotiated transactions, a tender or exchange offer, or
otherwise, upon such terms and at such prices as it shall determine, which may
be more or less than the price to be paid pursuant to the Offer.
APPRAISAL RIGHTS
Stockholders do not have appraisal rights as a result of the Offer.
However, if the Merger is consummated, stockholders of the Company at the time
of the Merger who do not vote in favor of the adoption of the Merger Agreement
will have the right under the DGCL to dissent and demand appraisal of, and
receive payment in cash of the fair value of, their Shares outstanding
immediately prior to the effective date of the Merger in accordance with Section
262 of the DGCL.
19
<PAGE> 22
Under the DGCL, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of the
fair value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of such merger or similar business combination)
and to receive payment of such fair value in cash. Any such judicial
determination of the fair value of such Shares could be based upon
considerations other than or in addition to the price paid in the Offer and the
Merger and the market value of the Shares. In Weinberger v. UOP, Inc., the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in an
appraisal proceeding. Stockholders should recognize that the value so determined
could be higher or lower than the per Share price to be paid pursuant to the
Offer or the Merger Consideration.
In addition, several decisions by Delaware courts have held that in certain
circumstances a controlling stockholder of a corporation involved in a merger
has a fiduciary duty to other stockholders that requires that the merger be fair
to other stockholders. In determining whether a merger is fair to minority
stockholders, Delaware courts have considered, among other things, the type and
amount of the consideration to be received by the stockholders and whether there
was fair dealing among the parties. The Delaware Supreme Court stated in
Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that the remedy
ordinarily available to minority stockholders in a cash-out merger is the right
to appraisal described above. However, a damages remedy or injunctive relief may
be available if a merger is found to be the product of procedural unfairness,
including fraud, misrepresentation or other misconduct.
THE FOREGOING SUMMARY OF THE RIGHTS OF OBJECTING STOCKHOLDERS DOES NOT
PURPORT TO STATE ALL OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING
TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE PRESERVATION AND EXERCISE OF
APPRAISAL RIGHTS REQUIRES STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE
DGCL. A COPY OF SECTION 262 OF THE DGCL IS ATTACHED HERETO AS SCHEDULE IV AND
THE FOREGOING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SCHEDULE IV.
CERTAIN EFFECTS OF THE TRANSACTIONS.
As a result of the Offer, the Purchaser will acquire an interest in the
Company's net book value and net earnings to the extent of the number of Shares
acquired in the Offer. If the Merger is consummated, Parent's direct and
indirect common equity interest in the Company would increase to 100% and Parent
would be entitled to all benefits resulting from that interest, including all
income generated by the Company's operations and any future increase in the
Company's value. As a result of the indebtedness to be incurred in connection
with the financing of the Offer and the Merger (the "Financing"), the
consolidated indebtedness (including guaranteed indebtedness) of the Company may
be greater than it was prior to the Financing, the equity of the Company may be
lower than its equity prior to the Financing, the interest rates on such debt
may be higher than the interest rates on the Company's current consolidated
indebtedness, a substantial portion of the Company's assets will be pledged to
secure such indebtedness and the new debt may contain more restrictions on the
Company's operations than the Company's existing consolidated debt, thereby
possibly reducing the Company's financial and operating flexibility. In
addition, substantial cash payments will be necessary to repay the Financing.
See "SPECIAL FACTORS -- Financing of the Transactions." For other effects of the
consummation of the Offer and the Merger, See SPECIAL FACTORS -- The Merger
Agreement and the Management Agreement" and "Effect of the Offer on the Markets
for the Shares; Nasdaq Listing; Exchange Act Registration."
Following the consummation of the Offer, the Shares may be delisted from
the Nasdaq Stock Market and the registration of the Shares under the Exchange
Act may be terminated. If the listing of the Shares is discontinued, the markets
for the Shares could be adversely affected. In addition, if the Shares were
delisted or the registration of the Shares under the Exchange Act was
terminated, the Shares would no longer constitute "margin securities" for the
purposes of the margin regulations of the Board of Governors of the Federal
Reserve System and, therefore, could no longer be used as collateral for loans
made by brokers. See "SPECIAL FACTORS -- Effect of the Offer on the Markets for
the Shares; Stock Exchange Listings and Exchange Act Registration."
20
<PAGE> 23
The primary benefit of the Offer to stockholders of the Company is that
they are being afforded an opportunity to sell all of their Shares for cash at a
price which, in the opinion of Parent, Purchaser and the Company, is fair to
such holders and is at a premium to the trading prices of the Shares prior to
the announcement of the Offer.
FUTURE PLANS IN ADDITION TO THE MERGER.
It is currently expected that initially following the purchase of the
Shares and the consummation of the Offer, the business and operations of the
Company will continue as they currently are conducted without substantial
change. Holdings will continue to evaluate all aspects of the business,
operations and management of the Company during the pendency of the Offer and
after the consummation of the Offer and will take such further actions as it
deems appropriate under the circumstances then existing.
Except as described in this Offer to Purchase, none of Purchaser, Parent,
Holdings, nor, to the best knowledge of Purchaser, Parent and Holdings, any of
the persons listed on Schedule III have any present plans or proposals that
would relate to or result in an extraordinary corporate transaction such as a
merger, reorganization or liquidation involving the Company or any of its
subsidiaries or a sale or other transfer of a material amount of assets of the
Company or any of its subsidiaries, any material change in the capitalization or
dividend policy of the Company or any other material change in the Company's
corporate structure or business or the composition of its Company Board or
management. Purchaser, Parent, Holdings and the Company expect to attempt to
implement the Company's strategic plan, which among other things contemplates
the growth of the Company through acquisitions.
The Purchaser presently intends following the purchase of Shares pursuant
to the Offer to exercise its rights under the Merger Agreement to designate a
number of persons to be elected to the Company Board sufficient to give the
Purchaser representation on the Company Board proportional to its percentage
ownership of Shares. The Company has agreed to promptly take all action
necessary to cause Purchaser's nominees to be elected, including either
increasing the size of the Company Board or securing resignations of incumbent
directors or both. The Company also has agreed to use its reasonable efforts to
cause Purchaser to have representation on each committee of the Company Board,
each board of directors of a Controlled Entity of the Company and each committee
thereof equal to its representation on the Company Board. Until Purchaser
acquires a majority of the outstanding Shares on a fully diluted basis, the
Company has agreed to use its reasonable best efforts to ensure that all members
of the Company Board and such other boards and committees as of March 24, 1999
who are not employees of the Company remain members thereof. In connection with
the designation by Purchaser of representatives to the Company Board, the
Company will file with the Commission and mail to its stockholders an
Information Statement pursuant to Section 14(f) of the Exchange Act.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS.
In considering the recommendations of the Company Board with respect to the
Offer and the Merger, stockholders of the Company should be aware that the
Executives have certain interests in the transactions contemplated by the Merger
Agreement that are different from, or in addition to, the interests of
stockholders of the Company in general. As discussed above, the two Executives
who are members of the Company Board abstained from voting on whether or not to
approve such transactions and the disinterested members of the Company Board
were aware of the interests of the Executives in the proposed transactions when
deciding to approve the transactions. See "Special Factors -- Background of the
Transactions" and "-- Recommendation of the Board of Directors; Fairness of the
Transactions" and "The Tender Offer -- Section 10" ("Certain Legal Matters and
Regulatory Approvals").
SUBSCRIPTION AND TENDER AGREEMENTS. Concurrently with the execution and
delivery of the Merger Agreement, Parent entered into the Subscription and
Tender Agreements with each of Dr. Eisenberg, Dr. Gold, Michael F. Schundler,
the Chief Operating Officer and Chief Financial Officer of the Company, Jay A.
Martus, the Vice President, Secretary and General Counsel of the Company, and
Dr. Gilbert L. Drozdow, the Vice President -- Hospital Based Services of the
Company, and the Tender Agreement with
21
<PAGE> 24
Robert J. Coward, the Vice President-Finance of the Company. The following is a
summary of the Subscription and Tender Agreements and the Tender Agreement,
which summary is qualified in its entirety by reference to the Subscription and
Tender Agreements and the Tender Agreement, copies of which are filed as
exhibits to the Schedule 13E-3 and the Tender Offer Statement on Schedule 14D-1
and Statement on Schedule 13D (the "Schedule 14D-1") filed by Holdings, Parent
and Purchaser with the Commission and are incorporated herein by reference.
The Subscription and Tender Agreements and the Tender Agreement provide
that each Executive will validly tender his Shares in the Offer and will not
withdraw any Shares so tendered; provided that the Merger Agreement has not been
terminated. Each Executive also agrees, so long as such Executive is required to
tender his Shares, to vote the Shares (a) in favor of the adoption of the Merger
Agreement and the approval of the transactions contemplated thereby and (b)
against any action or agreement that would result in a breach of any covenant,
representation or warranty contained in the Merger Agreement or would impede,
interfere with, delay or prevent the consummation of the Merger or the purchase
of Shares pursuant to the Offer. Each Executive has agreed not to, so long as
such Executive is required to tender his Shares, purport to vote (or execute a
consent with respect to) such Shares (other than in accordance with the
requirements of the Subscription and Tender Agreement or the Tender Agreement)
or grant any proxy or power of attorney with respect to any Shares, deposit any
Shares into a voting trust or enter into any agreement, arrangement or
understanding with any person (other than the Subscription and Tender Agreements
and the Tender Agreement), directly or indirectly, to vote, grant any proxy or
give instructions with respect to the voting of such Shares, or agree to do any
of the foregoing. The Subscription and Tender Agreement and the Tender Agreement
also provide that no Executive shall, so long as such Executive is required to
tender Shares pursuant to the Subscription and Tender Agreement or Tender
Agreement, sell, transfer or otherwise dispose of, pledge or otherwise encumber
any Shares after the date of such agreement (except to tender Shares to
Purchaser pursuant to the Offer), or agree to do any of the foregoing.
Pursuant to the Subscription and Tender Agreements, each Executive party
thereto has agreed to subscribe for and purchase, and Parent has agreed to issue
and sell to such Executive, on the date Purchaser purchases Shares pursuant to
the Offer (the "Closing Date") a specific number of shares of Parent Common
Stock at a price equal to the per Share price paid pursuant to the Offer. The
Stockholders have agreed to purchase an aggregate number of shares of Parent
Common Stock that are expected to constitute approximately 4.8% of the shares of
Parent Common Stock expected to be outstanding upon the consummation of the
Merger. Notwithstanding any other provision of the Subscription and Tender
Agreements, Parent shall have no obligations to issue, sell or deliver any of
its shares to any Executive (i) who is not a full-time employee of, or
consultant to, Parent or any of its subsidiaries on the Closing Date, (ii) whose
representations and warranties contained in his Subscription and Tender
Agreement are not true and correct as of the Closing Date in all material
respects or (iii) who has breached his obligations under his Subscription and
Tender Agreement.
The Subscription and Tender Agreements and the Tender Agreement also
provide that upon the consummation of the Merger (a) Parent shall adopt the
Vestar/Sheridan Holdings, Inc. 1999 Stock Option Plan (the "Option Plan") in
substantially the form attached to the Subscription and Tender Agreements and
the Tender Agreement and (b) Parent shall enter into stock option agreements
with each Executive in substantially the forms attached to the Subscription and
Tender Agreements and the Tender Agreement pursuant to which the Executives will
be granted options to purchase an aggregate of 950,000 shares of Parent Common
Stock, at an exercise price per share equal to the per Share price paid pursuant
to the Offer, subject to the satisfaction of certain time vesting requirements
or targets relating to the financial performance of the Company which are
described in the option agreements.
STOCKHOLDERS AGREEMENT. Concurrently with the execution and delivery of
the Merger Agreement, Parent, Holdings, the Company and the Executives party to
Subscription and Tender Agreements entered into the Stockholders Agreement. Mr.
Coward will enter into the Stockholders Agreement upon the consummation of the
Merger. The following is a summary of the Stockholders Agreement, which summary
is qualified in its entirety by reference to the Stockholders Agreement, a copy
of which is filed as an exhibit to the Schedule 14D-1 and the Schedule 13E-3 and
is incorporated herein by reference.
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Pursuant to the Stockholders Agreement, the shares of Parent Common Stock
beneficially owned by the Executives and any other employees of Parent and its
subsidiaries who become beneficial owners of Parent Common Stock (collectively,
the "Management Investors") are subject to restrictions on transfer, as well as
the other provisions described below.
The Stockholders Agreement provides that Holdings and the Management
Investors will vote all of their shares of Parent Common Stock to elect and
continue in office a Board of Directors of Parent and each subsidiary of Parent
(other than subsidiaries of the Company) consisting solely of the following:
(a) three designees of Holdings;
(b) two designees of the Management Investors (who shall be Mitchell
Eisenberg and Lewis Gold so long as each of them is an executive officer of
the Company); and
(c) two persons to be designated by Holdings in its sole discretion
after consultation with the representative of the Management Investors.
In addition, each Management Investor has agreed that until the Lapse Date (as
defined in the Stockholders Agreement), he will vote all of his shares of Parent
Common Stock (i) consistent with the vote of Holdings with respect to its shares
of Parent Common Stock and (ii) to ratify, approve and adopt any and all actions
adopted or approved by the Board of Directors of Parent.
The Stockholders Agreement provides for customary "tag-along" and
"drag-along" rights with respect to shares of Parent Common Stock beneficially
owned by the Management Investors. In addition, Holdings has certain rights to
require Parent to register shares of Parent Common Stock held by it under the
Securities Act of 1933 (the "Securities Act"), and Holdings and the Management
Investors have certain rights to participate in publicly registered offerings of
Parent Common Stock initiated by Parent or other third parties.
The Stockholders Agreement provides that upon termination of a Management
Investor's employment with Parent and its subsidiaries, (a) Parent, Holdings and
the Company will have call rights with respect to shares of Parent Common Stock
owned by such Management Investor and certain transferees and (b) such
Management Investor and certain transferees in certain limited circumstances
will have a right to put shares of Parent Common Stock to the Company. The
amount paid for shares of Parent Common Stock upon a put or a call will vary
depending on the reason for the termination of such Management Investor's
employment. The Stockholders Agreement also contains non-competition,
non-solicitation and confidentiality provisions agreed to by each Management
Investor who is not party to a written employment agreement with Parent or one
of its subsidiaries which contains such provisions.
EMPLOYMENT AGREEMENTS. Concurrently with the execution and delivery of the
Merger Agreement, the Company entered into Employment Agreements with each of
Dr. Eisenberg, Dr. Gold, Mr. Schundler and Mr. Martus. The following is a
summary of the Employment Agreements, which summary is qualified in its entirety
by reference to the Employment Agreements, copies of which are filed as exhibits
to the Schedule 14D-1 and the Schedule 13E-3 and are incorporated herein by
reference.
The Employment Agreements shall become effective upon the purchase of
Shares pursuant to the Offer. Each Employment Agreement has a five year term
with automatic one year renewals thereafter, unless either party gives the other
six months' written notice prior to the end of the applicable term. The
Employment Agreements supersede all prior agreements and understandings between
each Executive and the Company and its affiliates; provided that it shall not
supersede the Executives' rights under the Company's employee benefit plans.
The Employment Agreements provide for a one-time cash bonus at the
Effective Time in the amounts of $650,000, $600,000, $250,000, and $245,000 for
Dr. Eisenberg, Dr. Gold, Mr. Schundler and Mr. Martus, respectively. In
addition, the Employment Agreements provide for annual base salaries of
$375,000, $350,000, $275,000 and $275,000 for Dr. Eisenberg, Dr. Gold, Mr.
Schundler and Mr. Martus, respectively. The Company has also agreed to establish
an annual incentive compensation plan pursuant to which the Executives shall be
eligible to receive bonuses equal to 50%, in the case of Dr. Eisenberg and Dr.
Gold, or
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25%, in the case of Mr. Schundler and Mr. Martus, of their annual salaries based
upon satisfaction of annual performance targets established by the Company
Board.
If an Executive's employment pursuant to his Employment Agreement is
terminated (i) by the Company without cause (as defined in the Employment
Agreements), (ii) upon the death or permanent disability of the Executive or
(iii) by the Executive upon the occurrence of certain events, including the
failure of the Company to pay the Executive's salary or provide certain benefits
to which the Executive is entitled, certain relocations of the Company's offices
or a material breach of the Employment Agreement by the Company, the Company
shall make cash severance payments over a one year period following any such
termination in an aggregate amount equal to the relevant Executive's base salary
(twice the base salary in the case of Dr. Eisenberg and Dr. Gold) plus the pro
rata portion of the annual bonus to which the Executive would otherwise have
been entitled for the fiscal year in which such termination occurs if such
Executive had remained employed by the Company for the entire fiscal year. In
addition, Dr. Eisenberg's and Dr. Gold's Employment Agreements provide that if
their employment is terminated due to any of the foregoing events within one
year following a Change of Control (as defined), such Executive shall receive in
addition to the severance amounts described above the excess of (A) the greater
of (i) $1 million and (ii) twice the sum of such Executive's current base salary
and the bonus he received in the prior year less (B) twice his current base
salary. Payment of all severance amounts is subject to the Executive's continued
compliance with his covenant not to compete with the Company.
Each Employment Agreement also provides for termination upon mutual
consent, for cause, and by the Executive upon 90 days' written notice or upon
due notice not to renew at the end of his term of employment, in which event the
Company has no further obligation to the Executive other than the obligations to
pay accrued but unpaid salary, to provide certain continuing medical malpractice
insurance coverage and to pay Executive his accrued and unpaid bonus in respect
of prior completed fiscal years. If an Executive's employment is terminated
because the Company decides not to renew at the end of his term of employment,
such Executive shall be entitled to his accrued and unpaid salary and bonus and,
provided he complies with his covenant not to compete with the Company, an
amount equal to his base salary (twice the base salary in the case of Dr.
Eisenberg and Dr. Gold).
Each of the Executives is subject to certain non-competition,
non-solicitation and confidentiality provisions with respect to the Company and
its Controlled Entities (as defined in the Merger Agreement).
INDEMNIFICATION. The Merger Agreement provides that for a period of six
years after the Effective time the Surviving Corporation will indemnify each
person who is an officer or director of the Company or its Controlled Entities
on March 24, 1999 against all liabilities based upon or arising out his or her
capacity as such an officer or director prior to the Effective Time, to the same
extent he or she would have been indemnified under the Certificate of
Incorporation or By-laws of the Company or such Controlled Entity as in effect
on March 24, 1999 and to the extent permitted by law. The Surviving Corporation
also is obliged to honor indemnification agreements in existence between the
Company and its officers and directors. Messrs. Eisenberg, Lewis and Martus and
Levey & Martus, PA and Levey, Martus & Gilbert, PA are parties to
indemnification agreements with the Company with respect to certain litigation
pending against them and the Company.
The Merger Agreement also obligates the Surviving Corporation to maintain a
specified level of directors' and officers' liability insurance for six years
after the Effective Time covering acts and omissions alleged to have occurred
before the Effective Time. See "Special Factors -- The Merger Agreement and the
Management Agreement."
EMPLOYEE BENEFITS. The Merger Agreement also requires the Surviving
Corporation to maintain until the first anniversary of the consummation of the
Merger benefit plans substantially comparable in the aggregate to the benefit
plans in place on March 24, 1999 and disclosed to Parent. See "Special
Factors -- The Merger Agreement and the Management Agreement."
SHARE OWNERSHIP. As of the date hereof the Executives own the following
number of Shares: Dr. Eisenberg -- 208,041; Dr. Gold -- 168,826; Mr.
Schundler -- 36,200; Mr. Martus -- 10,782;
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Dr. Drozdow -- 48,537; and Mr. Coward -- 0. As of the date hereof the Executives
beneficially own Shares issuable upon exercise of Company Options granted to
them as follows: Dr. Eisenberg -- 50,000; Dr. Gold -- 37,499; Mr.
Schundler -- 37,500; Mr. Martus -- 46,174; Dr. Drozdow -- 30,000; and Mr.
Coward -- 25,200.
STOCK OPTIONS. Under the Merger Agreement, each option to purchase Shares
(a "Company Option") outstanding immediately prior to the Effective Time shall
become immediately vested. Each Company Option with an exercise price per Share
less than the Merger Consideration shall automatically be converted into the
right to receive cash in the amount of the product of (a) the Merger
Consideration minus such exercise price, multiplied by (b) the number of Shares
underlying each such Company Option. Based on Merger Consideration of $9.25, the
officers and directors of the Company will receive $556,058 in the aggregate in
respect of their Company Options, and Messrs. Eisenberg, Gold, Schundler,
Martus, Drozdow and Coward will receive $30,168, $20,618, $185,618 $179,779,
$39,551, and $86,250, respectively, in respect of their Company Options.
FINANCING OF THE TRANSACTIONS.
The total amount of funds required by Purchaser to purchase all of the
outstanding Shares pursuant to the Offer, to consummate the proposed Merger and
to pay fees and expenses related to the Offer and the proposed Merger is
estimated to be approximately $158 million. Purchaser plans to obtain all funds
needed for the Offer and the proposed Merger through capital contributions by
Parent and its affiliates and through borrowings under two credit facilities
with one or more commercial banks in respect of which Purchaser has obtained a
commitment letter from NationsBank, N.A. (the "NationsBank Commitment Letter")
providing for a $33.2 million senior tender offer facility (the "Tender
Facility") and a $125 million permanent senior secured credit facility (the
"Permanent Facilities" and, together with the Tender Facility, the "Credit
Facilities"). Such commitment letter indicates the bank's willingness to provide
funding on customary terms and conditions. The Offer will be financed in part
pursuant to the Tender Facility, with the proposed Merger being financed in part
pursuant to the Permanent Facilities, under which the Company, as the Surviving
Corporation in the Merger, will be the Borrower. As used herein, "Borrower"
refers to Purchaser under the Tender Facility and the Company, as the Surviving
Corporation in the Merger, under the Permanent Facilities. In addition, the
Borrower, in lieu of utilizing a portion of the Permanent Facilities, may choose
to offer debt securities to the public on terms not yet determined, (the
"Alternate Financing"). Unless the Alternate Financing is utilized, Vestar will
be required to provide $20 million in junior subordinated debt financing or
common or preferred equity financing in lieu thereof. Proceeds of the revolving
credit portion of the Permanent Facilities may be used to finance permitted
acquisitions in an amount aggregating up to $50 million; provided that, if the
Alternate Financing is implemented, only $45 million of such proceeds will be
available to finance permitted acquisitions and only during the first three
years of the Permanent Facilities. Any debt incurred to fund the purchase of the
Shares in the Offer is expected to be repaid at the Effective Time from funds
obtained under the Permanent Facilities.
Based upon the commitment letter and related term sheet, the Credit
Facilities will contain restrictive covenants that limit the Borrower with
respect to, among other things, creating liens upon its assets and disposing of
material amounts of assets other than in the ordinary course of business. The
Borrower will be required to prepay the Permanent Facilities from the net cash
proceeds of non-ordinary course asset sales and debt and equity issuances, with
certain limited exceptions. In addition, if the Alternate Financing is utilized,
the Borrower will be required to prepay the Permanent Facilities with 50% of
excess cash flow commencing after the third anniversary. The Borrower will also
be required to meet certain financial tests under the Credit Facilities.
Obligations under the Tender Facility will be guaranteed by Parent and secured
by an interest in the Shares. The Permanent Facilities will be guaranteed by
Parent and subsidiaries of the Borrower (the "Guarantors") and secured by
substantially all present and future assets of the Borrower and the Guarantors.
Purchaser has obtained a commitment letter from Vestar providing for the
common equity financing required to complete the transactions and for the $20
million in junior subordinated debt financing (or common or preferred equity
financing in lieu thereof) that will be required if the Alternate Financing is
not utilized.
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THE MERGER AGREEMENT AND THE MANAGEMENT AGREEMENT.
THE MERGER AGREEMENT. The following is a summary of the Merger Agreement,
which summary is qualified in its entirety by reference to the Merger Agreement,
which is attached hereto as Schedule V. Capitalized terms used and not otherwise
defined below have the meanings set forth in the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
and for the acceptance for payment, purchase and payment for Shares validly
tendered on or prior to the expiration of the Offer and not withdrawn, subject
to the satisfaction or waiver of the Offer Conditions. Purchaser has the right,
in its sole discretion, to waive any such condition and make any other changes
in the terms and conditions of the Offer; provided, however, without the written
consent of the Company, Purchaser may not amend or waive the Minimum Condition,
decrease the price per Share payable in the Offer, change the form of
consideration payable in the Offer (other than by adding consideration), reduce
the maximum number of Shares to be purchased in the Offer, or impose conditions
to the Offer in addition to those set forth in the Merger Agreement which are
materially adverse to the holders of Shares. Purchaser has the right in its sole
discretion to extend the Offer for up to five business days, notwithstanding the
prior satisfaction of the Offer Condition, in order to attempt to satisfy the
requirements of Section 253 of the DGCL.
The Merger. The Merger Agreement provides that, at the Effective Time and
subject to the conditions set forth therein (including the Offer Conditions
described in "The Tender Offer -- Section 9" ("Certain Conditions of the Offer")
and in accordance with the provisions of the DGCL, Purchaser shall merge into
the Company and the separate corporate existence of Purchaser shall cease, and
the Company shall continue as the Surviving Corporation of the Merger.
Certificate of Incorporation, By-laws, Directors and Officers. The Merger
Agreement provides that at the Effective Time the Certificate of Incorporation
of the Company as in effect immediately prior to the Effective Time shall be
amended so as to read in its entirety in the form set forth as Exhibit A to the
Merger Agreement and, as so amended, shall be the Certificate of Incorporation
of the Surviving Corporation until thereafter further amended as provided
therein and under the DGCL. At the Effective Time, the By-laws of the Purchaser
as in effect immediately prior to the Effective Time in the form set forth as
Exhibit B to the Merger Agreement shall be the By-laws of the Surviving
Corporation following the Merger and thereafter may be amended or repealed in
accordance with their terms or the certificate of incorporation of the Surviving
Corporation following the Merger and as provided under the DGCL. The Merger
Agreement further provides that the directors of Purchaser immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation
following the Merger, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation following the Merger, and
the officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed (as the case may be) and
qualified.
Conversion of Securities. Pursuant to the Merger Agreement, as of the
Effective Time, each Share outstanding immediately prior to the Effective Time
(other than any Shares owned by Parent or Purchaser and any Dissenting Shares)
shall be cancelled, extinguished and converted into the right to receive the
Merger Consideration, without interest, upon surrender of the certificate
formerly representing such Share in the manner described in the Merger
Agreement, less any withholding taxes required under applicable law.
Each share of common stock of Purchaser outstanding immediately prior to
the Effective Time shall be converted into and become one validly issued, fully
paid and nonassessable share of identical common stock of the Surviving
Corporation.
Company Options. At the Effective Time, each Company Option outstanding
immediately prior to the Effective Time shall become immediately vested. Each
Company Option with an exercise price per Share less than the Merger
Consideration shall automatically be converted into the right to receive cash in
the amount of the product of (a) the Merger Consideration minus such exercise
price, multiplied by (b) the number of Shares for which such Company Option is
exercisable. All other Company Options outstanding as of the Effective Time
shall automatically be terminated effective as of the Effective Time.
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Dissenters' Rights. The Merger Agreement provides that any Shares
outstanding immediately prior to the Effective Time held by a holder who has
demanded and perfected the right, if any, for appraisal of those Shares in
accordance with the provisions of Section 262 of the DGCL and as of the
Effective Time has not withdrawn or lost such right to such appraisal shall not
be converted into or represent a right to receive Merger Consideration, but the
holder shall only be entitled to such rights as are granted by the DGCL. If a
holder of Shares who demands appraisal of those Shares under the DGCL shall
effectively withdraw or lose (through failure to perfect or otherwise) the right
to appraisal, then, as of the Effective Time or the occurrence of such event,
whichever last occurs, those Shares shall be converted into and represent only
the right to receive the Merger Consideration without interest, upon the
surrender of the certificate or certificates representing those Shares.
Interim Operations. The Company has agreed that, from March 24, 1999 until
the earlier of the termination of the Merger Agreement and the time persons
nominated by Parent or Purchaser constitute a majority of the Board of Directors
of the Company, except as set forth in the Company Disclosure Statement (as
defined in the Merger Agreement) or unless Parent shall otherwise agree in
writing, the businesses and operations of the Company and its Controlled
Entities will be conducted only in the ordinary course of business and in a
manner consistent with past practice. The Company has also agreed that the
Company and its Controlled Entities shall use their commercially reasonable
efforts during such period to preserve intact the business organization and
goodwill of the Company and its Controlled Entities, to keep available the
services of their present officers and employees and to maintain satisfactory
relationships with those persons having business relationships with them.
The Company has also agreed that the Company and its Controlled Entities
shall refrain from directly or indirectly taking various actions without
Parent's consent until the time persons nominated by Parent or Purchaser
constitute a majority of the Company's Board of Directors. These prohibitions
cover, among other things, limitations on making changes to their organizational
documents, selling their capital stock or their property or assets (other than
in the ordinary course of business), declaring or paying any dividend or other
distribution, entering into any material agreement or transaction, including
acquisitions and dispositions, incurring debt other than in the ordinary course
of business beyond specified limits, making capital expenditures beyond
specified limits, increasing the compensation payable to its directors, officers
and employees (except normal increases in the ordinary course of business for
employees who are not directors or officers of the Company), granting any
severance or termination pay (except to the extent required under existing
policies or agreements), changing accounting or tax policies, settling any
litigation beyond specified limits, changing the composition of the Company
Board, amending, modifying or terminating any rights to intellectual property,
and failing to maintain the existing insurance policies covering the Company and
its subsidiaries.
Stockholders Meeting. Pursuant to the Merger Agreement, the Company,
acting through the Company Board, shall, if required in accordance with
applicable law and the Company's Certificate of Incorporation and By-Laws, (i)
duly call, give notice of, convene and hold a meeting of its stockholders as
soon as practicable following consummation of the Offer for the purpose of
adopting the Merger Agreement (the "Stockholders Meeting") and (ii) subject to
its fiduciary duties under applicable law (A) include in the proxy or
information statement relating to the Stockholders Meeting the unanimous
recommendation of the Company Board that the stockholders of the Company vote in
favor of the adoption of the Merger Agreement and the written opinions of
Salomon Smith Barney and Bowles Hollowell Conner that the consideration to be
received by the stockholders of the Company pursuant to the Offer and the Merger
is fair to such stockholders from a financial point of view and (B) use its
reasonable best efforts to obtain the necessary stockholder approval of the
Merger Agreement. Parent and Purchaser have agreed to cause all Shares then
beneficially owned by them and their subsidiaries to be voted in favor of
adoption of the Merger Agreement at any Stockholders Meeting.
The Merger Agreement provides that, notwithstanding the foregoing, if
Purchaser acquires at least 90% of the outstanding Shares pursuant to the Offer,
the Company and Parent shall, subject to the provisions of the Merger Agreement,
take all necessary and appropriate action to cause the Merger to become
effective as soon as reasonably practicable after such acquisition, without a
meeting of the Company's stockholders, in accordance with Section 253 of the
DGCL.
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Proxy Statement. The Merger Agreement provides that, if required by
applicable law, as soon as practicable following Parent's request, the Company
shall file with the Commission under the Exchange Act and the rules and
regulations promulgated thereunder, and shall use its reasonable good faith
efforts to have cleared by the Commission and mailed to the Company's
stockholders, the proxy or information statement relating to the Stockholders
Meeting. Parent, Purchaser and the Company have agreed to cooperate with each
other in the preparation of the proxy or information statement. Without limiting
the generality of the foregoing, each of Parent and Purchaser is obliged to
furnish to the Company the information relating to it required by the Exchange
Act and the rules and regulations promulgated thereunder to be set forth in the
Proxy Statement. The Company has agreed to use its best efforts, after
consultation with the other parties hereto, to respond promptly to any comments
made by the Commission with respect to the proxy or information statement and
any preliminary version thereof filed by it and cause such proxy or information
statement to be mailed to the Company's stockholders at the earliest practicable
time.
Company Board Representation. The Merger Agreement provides that, promptly
upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to
time thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Company Board as shall
give Purchaser representation on the Company Board equal to the product of the
total number of directors on the Company Board (giving effect to the directors
elected pursuant to this sentence) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser or any affiliate of
Purchaser bears to the total number of Shares then outstanding and the Company
shall, at such time, promptly take all action necessary to cause Purchaser's
designees to be so elected, including either increasing the size of the Company
Board or securing the resignations of incumbent directors or both. The Company
has agreed to use its reasonable best efforts to cause persons designated by
Purchaser to constitute the same percentage as is on the Company Board of (i)
each committee of the Company Board, (ii) each board of directors of each
Controlled Entity of the Company and (iii) each committee of each such board, in
each case only to the extent permitted by law. Until Purchaser acquires a
majority of the outstanding Shares on a fully diluted basis, the Company shall
use its reasonable best efforts to ensure that all the members of the Company
Board and such boards and committees as of March 24, 1999 who are not employees
of the Company or its Controlled Entities shall remain members of the Company
Board and such boards and committees.
Following the election or appointment of Purchaser's designees pursuant to
the Merger Agreement and prior to the Effective Time, any amendment of the
Merger Agreement or the Certificate of Incorporation or By-Laws of the Company,
any termination of the Merger Agreement by the Company, any extension by the
Company of the time for the performance of any of the obligations or other acts
of Parent or Purchaser or waiver of any of the Company's rights thereunder, will
require the concurrence of a majority of the directors of the Company then in
office who are neither designated by Purchaser or Parent nor are employees of
the Company or any of its Controlled Entities (the "Disinterested Directors").
Notwithstanding the immediately preceding paragraph, the number of Disinterested
Directors shall be not less than two; provided, however, that, in such event, if
the number of Disinterested Directors is reduced below two for any reason, the
remaining Disinterested Director is entitled to designate a person to fill the
vacancy, and such person will be deemed to be a Disinterested Director. If no
Disinterested Director remains, the other directors who were directors prior to
March 24, 1999 will designate two persons to fill such vacancies who cannot be
employees of any of the Company and its Controlled Entities or employees,
stockholders or affiliates of Parent or Purchaser, and such persons will be
deemed to be Disinterested Directors.
No Solicitations. The Merger Agreement provides that neither the Company
nor any of its Controlled Entities will (whether directly or indirectly through
advisors, agents or other intermediaries), nor will the Company or any of its
Controlled Entities authorize or permit any of its or their officers, directors,
agents, representatives, advisors or subsidiaries to, (a) solicit, initiate,
encourage (including by way of furnishing information) or take any action
knowingly to facilitate the submission of any inquiries, proposals or offers
(whether or not in writing) from any person (other than Parent and its
affiliates) relating to, other than the transactions contemplated by the Merger
Agreement, (i) any acquisition or purchase of 5% or more of the consolidated
assets of the Company and its Controlled Entities or of any class of equity
securities of the Company or any of its Controlled Entities, (ii) any tender
offer (including a self tender offer) or exchange
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offer that if consummated would result in any person beneficially owning any
class of equity securities of the Company or any of its Controlled Entities,
(iii) any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Controlled Entities whose assets,
individually or in the aggregate, constitute 5% or more of the consolidated
assets of the Company, or (iv) any other transaction the consummation of which
would or would reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which would or would reasonably be expected to
materially dilute the benefits to Parent or Purchaser of the transactions
contemplated by the Merger Agreement (collectively, "Transaction Proposals"), or
agree to or endorse any Transaction Proposal, or (b) enter into or participate
in any discussions or negotiations regarding any of the foregoing, or furnish to
any other person any information with respect to its business, properties or
assets in connection with the foregoing, or otherwise cooperate in any way with,
or knowingly assist or participate in, facilitate or encourage, any effort or
attempt by any other person (other than any of Parent and its affiliates) to do
or seek any of the foregoing; provided, however, that the foregoing shall not
prohibit the Company, prior to the receipt of stockholder approval of the
transactions contemplated hereby, (A) from complying with Rule 14e-2 and Rule
14d-9 under the Exchange Act with regard to a bona fide tender offer or exchange
offer or (B) from participating in negotiations or discussions with or
furnishing information to any person in connection with a Transaction Proposal
not solicited after March 24, 1999 which is submitted in writing by such person
to the Company Board after March 24, 1999; provided, however, that prior to
participating in any such discussions or negotiations or furnishing any
information, the Company receives from such person an executed confidentiality
agreement on terms not less favorable to the Company than the Confidentiality
Agreement; and provided, further, that the Company Board shall have concluded in
good faith, after consultation with its outside financial advisors, that such
Transaction Proposal is reasonably likely to constitute a Superior Proposal (as
defined below) and, after consultation with its outside legal counsel, that
participating in such negotiations or discussions or furnishing such information
is required in order to comply with its fiduciary duties to the stockholders of
the Company under applicable law; and provided, further, that the Company Board
shall not (unless it is prohibited from doing so by the terms of the Transaction
Proposal), take any of the foregoing actions prior to two business days after it
provides Parent with prompt (but in no event later than 24 hours after the
occurrence or commencement of such action) written notice thereof. If the
Company Board receives a Transaction Proposal, then the Company shall, to the
extent not prohibited in good faith by the terms of such Transaction Proposal,
promptly inform Parent of the terms and conditions of such proposal and the
identity of the person making it.
The Merger Agreement required the Company to cease and cause its advisors,
agents and other intermediaries to cease any and all activities, discussions or
negotiations with any parties conducted prior to March 24, 1999 with respect to
any of the foregoing and to use its reasonable best efforts to cause any such
parties in possession of confidential information about the Company that was
furnished by or on behalf of the Company to return or destroy all such
information in the possession of any such party or in the possession of any
agent or advisor of any such party. The Company has agreed not to release any
third party from, or waive any provisions of, any confidentiality or standstill
agreement to which the Company is a party. "Superior Proposal" is defined as any
of the transactions described in clause (i), (ii) or (iii) of the definition of
Transaction Proposal (with all of the percentages included in the definition of
such term raised to 51% for purposes of the definition) with respect to which
the Company Board shall have concluded in good faith, after consultation with
its outside legal counsel and financial advisors, is reasonably likely to be
completed, taking into account all legal, financial, regulatory and other
aspects of the Transaction Proposal, including the status of the financing
therefor, and the person making the proposal, and would, if consummated, result
in a transaction more favorable to the Company's stockholders from a financial
point of view than the transactions contemplated by the Merger Agreement,
including the Merger.
Employee Benefits Plans. The Merger Agreement provides that the Surviving
Corporation must maintain benefit plans substantially comparable in the
aggregate to the benefit plans in place on March 24, 1999 and disclosed to
Parent for a period of at least one year following the Effective Time. For
purposes of satisfying the terms and conditions of such plans, the Surviving
Corporation must give full credit for eligibility and vesting (but not benefit
accrual) for each participant's period of service with the Company prior to the
Effective Time. To the extent the Surviving Corporation's benefit plans provide
medical or dental welfare
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benefits after the Effective Time, the Surviving Corporation must cause all
pre-existing condition exclusions and actively at work requirements to be waived
to the extent such exclusions and work requirements have been satisfied under
medical and dental plans in place on March 24, 1999 and the Surviving
Corporation must provide that any expenses incurred on or before the Effective
Time will be taken into account under the Surviving Corporation's benefit plans
for purposes of satisfying the applicable deductible, coinsurance and maximum
out-of-pocket provisions for such employees and their covered dependents.
Indemnification of Directors and Officers. The Merger Agreement provides
that for a period of six years after the Effective Time the Surviving
Corporation must indemnify and hold harmless, and to honor its separate
indemnification agreements with, each person who is an officer or director of
the Company or its Controlled Entities on March 24, 1999 (an "Indemnified
Person") from and against all damages, liabilities, judgments and claims (and
related expenses including, but not limited to, attorney's fees and amounts paid
in settlement) based upon or arising from his or her capacity as an officer or
director of the Company or its Controlled Entities prior to the Effective Time,
to the same extent he or she would have been indemnified under the Certificate
of Incorporation or By-laws of the Company or the applicable Controlled Entity
as such documents were in effect on March 24, 1999 and to the extent permitted
under applicable law.
The Merger Agreement also provides that for a period of six years after the
Effective Time the Surviving Corporation must maintain in full force and effect
(i) the Company's directors' and officers' liability insurance policy in
existence on February 19, 1999 or (ii) a substantially similar policy maintained
by the Surviving Corporation providing for coverages of not less than $5,000,000
for acts and/or omissions alleged to have occurred prior to the Effective Time;
provided that (x) the Surviving Corporation is not required to spend an
aggregate amount for such coverage in excess of $380,000; and provided, further,
that if the aggregate premiums of such insurance coverage exceed such amount,
the Surviving Corporation is obligated to obtain a policy with the best coverage
available, in the reasonable judgment of the Board of Directors of the Surviving
Corporation, for an aggregate cost not exceeding such amount, and (y) such
policies may in the sole discretion of the Surviving Corporation be one or more
"tail" policies for all or any portion of the full six year period.
Further Action; Reasonable Best Efforts. The Merger Agreement provides
that, upon the terms and subject to the conditions thereof, each of the parties
thereto shall use its reasonable best efforts to take, or cause to be taken, all
action, and to do or cause to be done, and to assist and cooperate with the
parties in doing, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by the Merger Agreement and the
Stockholder Documents in the most expeditious manner practicable. The Merger
Agreement further provides that the Company must use its commercially reasonable
best efforts to obtain all consents, approvals, agreements, extensions or other
waivers of rights necessary to ensure that all Leases (as defined in the Merger
Agreement) and other Material Contracts (as defined in the Merger Agreement)
remain in full force and effect for the benefit of the Company after the
Effective Time on substantially the same terms and conditions as in effect on
the date of the Merger Agreement (without any material increase in amounts
payable by the Company thereunder). The Company must file with the Internal
Revenue Service a Form 3115 in form and substance satisfactory to Parent and
duly executed and acknowledged requesting permission for the Company and each of
the entities with which the Company files a consolidated Federal income tax
return to change the method of accounting for taxable gross revenues to the
non-accrual experience method as defined in Internal Revenue Code Section
448(d)(5).
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto. Representations
and warranties of the Company include, without limitation, certain matters
concerning the Company's capitalization, the Company's authority to execute,
deliver and perform under, and the Company Board's approval of, the Offer, the
Merger, the Merger Agreement, the Stockholder Documents and the transactions
contemplated thereby, absence of any conflicts with charter documents and
contracts, required filings and consents, compliance with law, Commission
filings and financial statements, absence of certain changes or events, absence
of litigation, employee benefit plans, tax matters, environmental matters,
interim conduct of business, billing and coding, properties, 1998 financial
statements, brokers and year 2000 issues. Some of the representations are
qualified by a "Material Adverse Effect" clause. "Material Adverse Effect" means
(a) any change or effect that individually or in the aggregate would be
materially adverse to the business, operations, assets, liabilities, financial
condition or results of
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operations of such entity and its subsidiaries and controlled entities taken as
a whole or (b) a material impairment on the ability of such entity or its
subsidiaries and controlled entities taken as a whole to perform any of their
material obligations under the Merger Agreement or to consummate the Merger.
Representations and warranties of Parent and Purchaser include, without
limitation, certain matters relating to their organization and qualification to
do business, their authority to enter into the Merger Agreement and to
consummate the transactions contemplated thereby, their filings with the
Commission in connection with the Offer, consents and approvals required for the
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby, brokers and commitment letters. Some of the
representations are qualified by a "Material Adverse Effect" clause.
Conditions of the Merger. Under the Merger Agreement, the respective
obligations of Parent and Purchaser, on the one hand, and the Company, on the
other hand, to consummate the Merger are subject to the satisfaction at or prior
to the Effective Time of the following conditions: (a) if required by the DGCL,
the Merger Agreement shall have been adopted by the requisite vote of the
stockholders of the Company; (b) no preliminary or permanent injunction or other
order, decree, statute, rule or regulation by any federal or state court or
federal, state, local or other governmental authority which prevents the
consummation of the Merger shall have been issued and remain in effect; (c) any
waiting period applicable to the consummation of the Merger under the HSR Act
shall have terminated or expired; and (d) Purchaser shall have purchased Shares
pursuant to the Offer. In addition, the obligations of Parent and Purchaser to
effect the Merger are subject to the additional condition that funding under the
Permanent Facilities in the amounts and on the other terms and conditions set
forth in the NationsBank Commitment Letter shall have been received.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the adoption
of the Merger Agreement by the stockholders of the Company:
(a) By mutual written consent of Parent, Purchaser and the Company;
(b) By Parent or the Company, if any court of competent jurisdiction
or other governmental authority located or having jurisdiction within the
United States shall have issued an order, injunction, decree, judgment or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, injunction, decree,
judgment, ruling or other action is or shall have become final and
nonappealable;
(c) By Parent, if due to an occurrence or circumstance which resulted
in a failure to satisfy any of the Offer Conditions (other than as a result
of a material breach by Parent or Purchaser of any of its obligations under
the Merger Agreement), Purchaser shall have (i) terminated the Offer or
(ii) failed to pay for Shares pursuant to the Offer on or prior to May 31,
1999 (the "Outside Date");
(d) By the Company, prior to the purchase of Shares pursuant to the
Offer, if (i) pursuant to and in compliance with the Merger Agreement, the
Company Board withdraws, modifies or amends in a manner adverse to Parent
or Purchaser any of its recommendations described in the Merger Agreement
(or publicly announces its intention to do so), or (ii) the Company or the
Company Board approves a Superior Proposal; provided, however, that (A) the
Company shall have complied with the Merger Agreement, (B) the Company
Board shall have concluded in good faith, after consultation with its
outside legal counsel and financial advisors, that such proposal is a
Superior Proposal and (C) the Company Board shall have concluded in good
faith, after consultation with its outside legal counsel, that approving
and entering into an agreement in connection with, and consummating, such
Superior Proposal is required in order to comply with its fiduciary duties
to the stockholders of the Company under applicable law; provided, that the
Merger Agreement may not be terminated pursuant thereto unless (x)
concurrently with such termination, the Company pays to Parent the
Termination Fee (as hereinafter defined) and (y) the Company shall have
provided Parent with at least two business days advance notice of such
termination.
(e) By Purchaser, prior to the purchase of Shares pursuant to the
Offer, if the Company or the Company Board shall have (i) withdrawn,
modified or amended in any respect adverse to Parent or
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Purchaser any of its recommendations described in the Merger Agreement (or
publicly announced its intention to do so), (ii) failed as promptly as
reasonably practicable to mail the Company's Solicitation/Recommendation
Statement on Schedule 14D-9 in respect of the Offer (the "Schedule 14D-9")
to its stockholders or failed to include in such Schedule 14D-9 such
recommendations, (iii) approved, recommended or entered into an agreement
with respect to, or consummated, any Transaction Proposal from a person
other than Parent or any of its affiliates, (iv) resolved to do any of the
foregoing, or (v) in response to the commencement of any tender offer or
exchange offer (other than the Offer) for outstanding Shares, not
recommended rejection of such tender offer or exchange offer.
(f) By the Company, prior to the purchase of Shares pursuant to the
Offer, if (i) Parent or Purchaser breaches any of its representations,
warranties, covenants or agreements contained in the Merger Agreement and
such breach is reasonably likely to have a Material Adverse Effect on
Parent and, with respect to any such breach that it is reasonably capable
of being remedied, the breach is not remedied prior to the earlier of (x)
20 days after the Company has furnished Parent with written notice of such
breach or (y) two business days prior to the date on which the Offer
expires, or (ii) Purchaser shall have (A) terminated the Offer or (B)
failed to pay for Shares pursuant to the Offer on or prior to the Outside
Date (unless such failure is caused by or results from the breach by the
Company of any of its representations, warranties, covenants or agreements
contained in the Merger Agreement).
(g) By Parent, if (i) the Company breaches any of its representations,
warranties, covenants or agreements contained in the Merger Agreement and
such breach is reasonably likely to have a Material Adverse Effect on the
Company and, with respect to any such breach that is reasonably capable of
being remedied, the breach is not remedied prior to the earlier of (x) 20
days after Parent has furnished the Company with written notice of such
breach or (y) two business days prior to the date on which the Offer
expires, or (ii) the Minimum Condition shall not have been satisfied by the
expiration date of the Offer as it may have been extended pursuant to the
Merger Agreement and on or prior to such date (A) any person (including the
Company but not including any of Parent and its other affiliates) shall
have made a public announcement, public disclosure or other formal
communication to the Company or its stockholders with respect to a
Transaction Proposal or (B) any person (including the Company or any of its
Controlled Entities), other than Parent or any of its affiliates, shall
have become (and remain at the time of termination) the beneficial owner of
19.9% or more of the Shares (provided that any person who on March 24, 1999
beneficially owns 19.9% or more of the Shares shall not have become the
beneficial owner of an additional 3% of the Shares) (unless such person
shall have tendered and not withdrawn such person's Shares pursuant to the
Offer).
Termination Fee and Expenses. (a) The Company shall (provided that neither
Parent nor Purchaser is then in material breach of its obligations under the
Merger Agreement) upon the termination of the Merger Agreement if such
termination shall have occurred, in whole or in part, by reason of the failure
of any of the Offer Conditions set forth in paragraphs (a), (b), (d), (e), (f)
and (i) thereof or the Financing Condition (unless such financing is not
received due to (i) the occurrence of a material disruption of or material
adverse change in financial, banking or capital market conditions, (ii) a
competing offering, placement or arrangement of debt securities or bank
financing by or on behalf of the Company or any Controlled Entity thereof that
was undertaken by, on behalf of (with Parent's or Purchaser's consent), or at
the direction of Parent or its affiliates, or (iii) a material disruption or
material adverse change in the market for new issues of high yield securities or
the financial or capital markets in general), or paragraphs (d), (e) or (f) (ii)
under "Termination" above if Parent could have terminated the Merger Agreement
and such termination would have occurred, in whole or in part, for any of the
reasons set forth earlier in this sentence with respect to a termination
pursuant to paragraphs (c) or (g) under "Termination" above, promptly, but in no
event later than two business days following written notice thereof, together
with reasonable supporting documentation, reimburse Parent and Purchaser, in an
aggregate amount of up to $3,000,000, for all reasonable out-of-pocket expenses
and fees (including fees payable to all banks, investment banking firms and
other financial institutions, and their respective agents and counsel, and all
fees of counsel, accountants, financial printers, advisors, experts and
consultants to Parent and its affiliates), whether incurred prior to,
concurrently with or after the execution of the Merger Agreement in connection
with the Offer or the Merger or the consummation
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of any other transaction contemplated by the Merger Agreement or the Stockholder
Documents, the financing thereof or consents related thereto (collectively, the
"Expenses"). Such payment, together with any Termination Fee which may be paid,
shall serve as full liquidated damages in respect of such breach, and Parent and
Purchaser have waived all claims against the Company and its Controlled Entities
in respect of breach or breaches occasioning the payment pursuant hereto. It is
understood that if Purchaser is paid a Termination Fee (as defined below), to
the extent not previously paid, no amounts shall be payable as Expenses.
(b) If the Merger Agreement is terminated by the Company pursuant to
paragraph (d) under "Termination" or by Purchaser pursuant to paragraph (e)
under "Termination" above, the Company shall pay to Parent by wire transfer of
immediately available funds to an account designated by Parent on the next
business day following such termination (or, in the case of a termination
pursuant to paragraph (d) under "Termination" above, prior to the effectiveness
of such termination) an amount equal to $6,400,000 (the "Termination Fee") less
any amount previously paid to Parent in respect of Expenses.
(c) If all of the following events have occurred:
(i) a Transaction Proposal is commenced, publicly disclosed, publicly
proposed or otherwise formally communicated to the Company or its
stockholders at any time on or after March 24, 1999 but prior to any
termination of the Merger Agreement and either (A) Parent terminates the
Merger Agreement pursuant to paragraph (c) under "Termination" above
(unless such termination shall have occurred, in whole or in part, due to
the failure of the condition set forth in paragraph (c) of the Offer
Conditions or of the Financing Condition due to, in the case of the failure
of the Financing Condition, (i) the occurrence of a material disruption of
or material adverse change in financial, banking or capital market
conditions, (ii) a competing offering, placement or arrangement of debt
securities or bank financing by or on behalf of the Company or any
Controlled Entity thereof that was undertaken by or on behalf of (with
Parent's or Purchaser's consent), or at the direction of Parent or any of
its affiliates, or (iii) a material disruption or material adverse change
in the market for new issues of high yield securities or the financial or
capital markets in general) or (B) the Company terminates the Merger
Agreement pursuant to paragraph (f)(ii) under "Termination" above or (C)
Parent terminates the Merger Agreement pursuant to paragraph (g) under
"Termination" above; and
(ii) thereafter, within 12 months of the date of such termination, the
Company enters into a definitive agreement with respect to, or consummates,
the Transaction Proposal referred to in clause (i) above or a Superior
Proposal (whether or not such Superior Proposal was commenced, publicly
disclosed, publicly proposed or otherwise communicated to the Company or
its stockholders prior to such termination);
then, the Company shall pay to Parent, concurrently with the earlier of the
execution of such definitive agreement or the consummation of such
Transaction Proposal, an amount equal to the Termination Fee (less any
amount previously paid to Parent in respect of Expenses).
(d) Purchaser shall (provided that the Company is not then in material
breach of any of its representations, warranties or obligations under the Merger
Agreement), following the termination of the Merger Agreement in accordance with
paragraph (f) under "Termination" above (if such termination shall have occurred
by reason of a material breach by Parent or Purchaser of any of its material
obligations under the Merger Agreement), promptly, but in no event later than
two business days following written notice thereof, together with reasonable
supporting documentation, reimburse the Company, in an aggregate amount of up to
$1,000,000, for all reasonable out-of-pocket expenses and fees (including those
payable to investment banking firms and other financial institutions, and their
respective agents and counsel and all fees of counsel, accountants, financial
printers, advisors, experts and consultants to the Company and its affiliates),
whether incurred prior to, concurrently with or after the execution of the
Merger Agreement, in connection with the Offer or the Merger or the consummation
of any other transaction contemplated thereby or by the Stockholder Documents,
the financing thereof or consents related thereto. Such payment shall serve as
full liquidated damages in respect of such breach and the Company has waived, on
behalf of itself and its
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Controlled Entities, all claims against Parent and its affiliates in respect of
the breach or breaches occasioning the payment pursuant to such provisions.
(e) Except as otherwise specifically provided in the Merger Agreement, each
party thereto shall bear its own expenses in connection with the Merger
Agreement and the transactions contemplated thereby; provided that all expenses
of Parent and Purchaser shall be paid by the Surviving Corporation at or
following the Effective Time.
Guaranty. Concurrently with the execution and delivery of the Merger
Agreement, Vestar entered into a Guaranty Agreement with the Company pursuant to
which Vestar irrevocably guaranteed the payment of Parent's obligations to the
Company described in paragraph (d) under "Termination Fee and Expenses." The
foregoing summary of the Guaranty Agreement is qualified in its entirety by
reference to the Guaranty Agreement, a copy of which is filed as an exhibit to
the Schedule 14D-1 and the Schedule 13E-3 and is incorporated herein by
reference.
MANAGEMENT AGREEMENT. Concurrently with the execution and delivery of the
Merger Agreement, Vestar Capital Partners, a New York general partnership
affiliated with Vestar ("Vestar Capital"), the Company and Parent entered into a
Management Agreement (the "Management Agreement"). The following is a summary of
the Management Agreement, which summary is qualified in its entirety by
reference to the Management Agreement, a copy of which is filed as an exhibit to
the Schedule 14D-1 and the Schedule 13E-3 and is incorporated herein by
reference.
Pursuant to the Management Agreement, Vestar Capital has agreed commencing
upon the Effective Time to render to each of Parent and the Company (and their
subsidiaries) certain advisory and consulting services. In consideration of
those services, Parent and the Company jointly and severally agreed to pay to
Vestar Capital an aggregate per annum management fee equal to the greater of (i)
$300,000 and (ii) an amount per annum equal to 1.5% of the consolidated earnings
before depreciation, interest, taxes and amortization of Parent and its
subsidiaries for such fiscal year, determined in accordance with generally
accepted accounting principles, commencing at the Effective Time. Parent and the
Company also jointly and severally agreed to pay Vestar Capital at the Effective
Time a transaction fee equal to $1.6 million plus all out-of-pocket expenses
incurred by Vestar Capital prior to the Effective Time for services rendered by
Vestar Capital in connection with the consummation of the Offer and the Merger.
Parent and the Company also jointly and severally agreed to indemnify Vestar
Capital and its affiliates from and against all losses, claims, damages and
liabilities arising out of the performance by Vestar Capital of its services
pursuant to the Management Agreement. The Management Agreement shall terminate
upon the earlier to occur of (i) the termination of the Merger Agreement or (ii)
such time after the Effective Time as Vestar Capital and its partners and their
respective affiliates thereof hold, in the aggregate, less than 20% of the
voting power of the Company's outstanding voting stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The summary of tax consequences set forth below is for general information
only and is based on the law as currently in effect. The tax treatment of each
stockholder will depend in part upon such stockholder's particular situation.
Special tax consequences not described herein may be applicable to particular
classes of taxpayers, such as financial institutions, broker-dealers, insurance
companies, foreign corporations, foreign partnerships, foreign trusts, foreign
estates, persons who are not citizens or residents of the United States, tax-
exempt entities, stockholders who acquired their Shares through the exercise of
an employee stock option or otherwise as compensation, and persons who received
payments in respect of options to acquire Shares. ALL STOCKHOLDERS SHOULD
CONSULT WITH THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX LAWS
AND CHANGES IN SUCH TAX LAWS.
The receipt of cash pursuant to the Offer or the Merger will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"), and may also be a taxable transaction under
applicable state, local, foreign income or other tax laws. Generally, for
federal income tax purposes, a stockholder will recognize gain or loss in an
amount equal to the difference between the cash
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received by the stockholder pursuant to the Offer or the Merger and the
stockholder's adjusted tax basis in the Shares purchased pursuant to the Offer
or converted into cash in the Merger. Gain or loss will be calculated separately
for each block of Shares tendered and purchased pursuant to the Offer or
converted in the Merger, as the case may be. For Federal income tax purposes,
such gain or loss will be a capital gain or loss if the Shares are a capital
asset in the hands of the stockholder, and a long-term capital gain or loss if
the stockholder's holding period is more than one year as of the date Purchaser
accepts such Shares for payment pursuant to the Offer or the Effective Time of
the Merger, as the case may be. In the case of a non-corporate stockholder,
capital gain is currently eligible for a maximum Federal income tax rate of 20%
(10% for non-corporate stockholders in the 15% tax bracket) if the Shares were
held for more than one year. There are limitations on the deductibility of
capital losses.
EFFECTS OF THE OFFER ON THE MARKETS FOR THE SHARES; NASDAQ LISTING; EXCHANGE ACT
REGISTRATION.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and reduce the number of holders of
Shares, which could adversely affect the liquidity and market value of the
remaining Shares held by the public. Following the completion of the Offer, a
majority of the outstanding Shares will be owned by Purchaser.
Depending upon the number of Shares purchased pursuant to the Offer, the
Common Stock may no longer meet the requirements of the National Association of
Securities Dealers, Inc. (the "NASD") for continued inclusion in Nasdaq, which
requires that for each class of shares listed by an issuer, there must be at
least 200,000 publicly held shares, held by at least 400 stockholders or 300
stockholders of round lots, with a market value of at least $1,000,000 and the
issuer must have net tangible assets of at least $1,000,000, $2,000,000 or
$4,000,000, depending on profitability levels during the issuer's four most
recent fiscal years. If these standards are not met, the Common Stock might
nevertheless continue to be included in the NASD's Nasdaq Stock Market (the
"Nasdaq Stock Market") with quotations published in Nasdaq "additional list" or
in one of the "local lists," but if the number of holders of the Common Stock
were to fall below 300, or if the number of publicly held shares of Common Stock
were to fall below 100,000 or there were not at least two registered and active
market makers for the Common Stock, the NASD's rules provide that the Common
Stock would no longer be "qualified" for Nasdaq Stock Market reporting and
Nasdaq Stock Market would cease to provide any quotations with respect thereto.
Shares of Common Stock held directly or indirectly by directors, officers or
beneficial owners of more than 10% of the outstanding Common Stock are not
considered as being publicly held for this purpose. As of March 16, 1999, there
were approximately 950 holders of record or through nominee or street name
accounts with brokers of Common Stock and there were 6,290,178 shares of Common
Stock outstanding. As of March 24, 1999 there was one holder of all outstanding
shares of Class A Common Stock. If as a result of the purchase of Shares
pursuant to the Offer or otherwise, the Common Stock no longer meets the
requirements of the NASD for continued inclusion in Nasdaq or in any other tier
of Nasdaq Stock Market and the Common Stock is no longer included in Nasdaq or
in any other tier of Nasdaq Stock Market, as the case may be, the market for
Common Stock could be adversely affected.
If Nasdaq were to delist the Common Stock, it is possible that the Common
Stock would continue to trade in the over-the-counter market and that price or
other quotations would be reported through other sources. The extent of the
public market therefor and the availability of such quotations would depend,
however, upon such factors as the number of stockholders and/or the aggregate
market value of such securities remaining at such time, the interest in
maintaining a market in the Common Stock on the part of the securities firms,
the possible termination of registration under the Exchange Act as described
below and other factors. Purchaser cannot predict whether the reduction in the
number of shares of Common Stock that might otherwise trade publicly would have
an adverse or beneficial effect on the market price for or marketability of
Common Stock or whether it would cause future market prices to be greater or
less than the Offer price.
The Common Stock is currently registered under the Exchange Act and the
Class A Common Stock is not so registered. The purchase of Shares pursuant to
the Offer may result in the Common Stock becoming eligible for deregistration
under the Exchange Act. Registration of the Common Stock may be terminated upon
application of the Company to the Commission if the Common Stock is not listed
on a national
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securities exchange and there are fewer than 300 holders of record. The
termination of the registration of the Common Stock under the Exchange Act would
substantially reduce the information required to be furnished by the Company to
holders of shares of Common Stock and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions, no longer applicable to the Common
Stock or the holders thereof, as the case may be. Furthermore, "affiliates" of
the Company and persons holding "restricted securities" of the Company may be
deprived of the ability to dispose of the securities pursuant to Rule 144 under
the Securities Act.
The shares of Common Stock, but not the Class A Common Stock, are currently
"margin securities" under the rules of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), which has the effect, among other
things, of allowing brokers to extend credit on the collateral of the Common
Stock for the purpose of buying, carrying or trading in securities ("purpose
loans"). Depending upon factors similar to those described above with respect to
listing and market quotations, it is possible that, following the Offer, the
Common Stock might no longer constitute "margin securities" for the purpose of
the Federal Reserve Board's margin regulations and therefore could no longer be
used as collateral for purpose loans made by brokers.
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THE TENDER OFFER
1. Terms of the Offer; Expiration Date. Upon the terms and subject to the
conditions of the Offer (including if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept for
payment, purchase and pay for all Shares validly tendered on or prior to the
Expiration Date and not properly withdrawn as permitted by Section 4
("Withdrawal Rights"). The term "Expiration Date" means 12:00 Midnight, New York
City time, on Tuesday, April 27, 1999, unless and until Purchaser, in its sole
discretion (but subject to the terms and conditions of the Merger Agreement),
shall have extended the period during which the Offer is open, in which event
the term "Expiration Date" shall mean the latest time and date at which the
Offer, as so extended by Purchaser, shall expire.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE
MINIMUM CONDITION AND THE FINANCING CONDITIONS. SEE SECTION 9 ("CERTAIN
CONDITIONS OF THE OFFER"), WHICH SETS FORTH IN FULL THE OFFER CONDITIONS.
SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE RULES AND
REGULATIONS OF THE COMMISSION, PURCHASER RESERVES THE RIGHT, IN ITS SOLE
DISCRETION, TO WAIVE ANY OR ALL CONDITIONS TO THE OFFER (OTHER THAN THE MINIMUM
CONDITION) AND TO MAKE ANY OTHER CHANGES IN THE TERMS AND CONDITIONS OF THE
OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE
RULES AND REGULATIONS OF THE COMMISSION, IF BY THE EXPIRATION DATE ANY OR ALL OF
SUCH OFFER CONDITIONS HAVE NOT BEEN SATISFIED, PURCHASER RESERVES THE RIGHT (BUT
SHALL NOT BE OBLIGATED) TO (i) TERMINATE THE OFFER AND RETURN ALL TENDERED
SHARES TO TENDERING STOCKHOLDERS, (ii) WAIVE SUCH UNSATISFIED CONDITIONS (OTHER
THAN THE MINIMUM CONDITION) AND PURCHASE ALL SHARES VALIDLY TENDERED OR (iii)
EXTEND THE OFFER AND, SUBJECT TO THE TERMS OF THE OFFER (INCLUDING THE RIGHTS OF
STOCKHOLDERS TO WITHDRAW THEIR SHARES), RETAIN THE SHARES WHICH HAVE BEEN
TENDERED, UNTIL THE OFFER, AS SO EXTENDED BY PURCHASER, SHALL EXPIRE.
Subject to the provisions of the Merger Agreement and the applicable rules
and regulations of the Commission, Purchaser expressly reserves the right, in
its sole discretion, at any time and from time to time, and regardless of
whether or not any of the Offer Conditions shall have occurred or shall have
been determined by Purchaser to have occurred, to (i) extend the period of time
during which the Offer is open and thereby delay acceptance for payment of, and
the payment for, any Shares, by giving oral or written notice of such extension
to the Depositary and (ii) amend the Offer in any respect by giving oral or
written notice of such amendment to the Depositary. Under the terms of the
Merger Agreement, however, without the written consent of the Company, Purchaser
may not amend or waive the Minimum Condition, decrease the price per Share
payable in the Offer, change the form of consideration payable in the Offer
(other than by adding consideration), reduce the maximum number of Shares to be
purchased in the Offer, or impose conditions to the Offer in addition to those
set forth in the Merger Agreement which are materially adverse to the holders of
Shares. Purchaser shall have no obligation to pay interest on the purchase price
of tendered Shares, including in the event Purchaser exercises its right to
extend the period of time during which the Offer is open. The foregoing rights
reserved by Purchaser are in addition to Purchaser's rights to terminate the
Offer upon the failure of the Offer Conditions to be satisfied on the Expiration
Date. Notwithstanding the foregoing, Purchaser shall extend the Offer for any
period required by any rule, regulation, interpretation or position of the
Commission or the staff thereof applicable to the Offer, and Purchaser may
extend the Offer for up to the five business days, notwithstanding the prior
satisfaction of the Offer Conditions, in order to attempt to satisfy the
requirements of Section 253 of the DGCL. Subject to the terms and conditions of
the Offer, Purchaser will accept for payment, purchase and pay for all Shares
validly tendered and not withdrawn as soon as it is permitted to do so in
accordance with the provisions of the Merger Agreement and under applicable law.
Any extension, delay, termination, waiver or amendment will be followed as
promptly as practicable by public announcement thereof, and such announcement in
the case of an extension will be made in accordance with Rule 14e-1(d) under the
Exchange Act, no later than 9:00 A.M., New York City time, on the next business
day after the previously scheduled Expiration Date. Without limiting the manner
in which Purchaser may choose to make any public announcement, except as
provided by applicable law (including Rules 14d-4(c) and 14d-6(d) under the
Exchange Act, which require that material changes be promptly disseminated to
holders of Shares), Purchaser shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to the Dow Jones News Service.
37
<PAGE> 40
If Purchaser makes a material change in the terms of the Offer or if it
waives a material condition of the Offer, Purchaser will disseminate additional
tender offer materials and extend the Offer to the extent required by Rules
14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during
which an offer must remain open following material changes in the terms of the
Offer, other than a change in price or a change in the percentage of securities
sought, will depend upon the facts and circumstances, including the materiality,
of the changes. With respect to a change in price or, subject to certain
limitations, a change in the percentage of securities sought, a minimum 10
business day period from the day of such change is generally required to allow
for adequate dissemination to stockholders. For purposes of the Offer, a
"business day" means any day other than a Saturday, Sunday, or a federal holiday
and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York
City time.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal and
other relevant materials will be mailed by Purchaser to record holders of Shares
and furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. The obligation of
Purchaser to accept for payment Shares tendered shall be subject to the
satisfaction of the Offer Conditions. Purchaser covenants and agrees that,
subject to the terms and conditions of the Merger Agreement, including the Offer
Conditions, it will accept for payment and pay for Shares validly tendered and
not withdrawn pursuant to the Offer as promptly as reasonably practicable. In
addition, subject to the applicable rules of the Commission, Purchaser expressly
reserves the right to delay acceptance for payment of or payment for Shares
pending receipt of any other regulatory approvals specified in Section 10
("Certain Legal Matters and Regulatory Approvals"). Any such delays will be
effected in compliance with Rule 14e-1(c) under the Exchange Act.
For information with respect to approvals required to be obtained prior to
the consummation of the Offer, including the HSR Act, see Section 10 ("Certain
Legal Matters and Regulatory Approvals").
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i)
certificates representing such Shares ("Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at the Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in Section
3 ("Procedure for Tendering Shares"), (ii) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined below) in connection
with a book-entry transfer and (iii) any other documents required by the Letter
of Transmittal.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to and received by the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that Purchaser
may enforce such agreement against such participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from Purchaser and
transmitting such payments to stockholders whose Shares have been accepted for
payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES
BE PAID OR ACCRUED FOR THE BENEFIT OF HOLDERS OF SHARE CERTIFICATES ON THE PRICE
PER SHARE PAYABLE UPON THE SURRENDER OF THE SHARE CERTIFICATES, REGARDLESS OF
ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If for any
reason acceptance for payment of or payment for any Shares tendered pursuant to
the Offer is delayed or Purchaser is unable to accept for payment or pay for
Shares
38
<PAGE> 41
tendered pursuant to the Offer, then without prejudice to Purchaser's rights set
forth herein, the Depositary may nevertheless, on behalf of Purchaser and
subject to Rule 14e-1(c) under the Exchange Act, retain tendered Shares and such
Shares may not be withdrawn except to the extent that the tendering stockholder
is entitled to and duly exercises withdrawal rights as described in Section 4
("Withdrawal Rights").
If any tendered Shares are not accepted for payment for any reason or if
Share Certificates are submitted for more Shares than are tendered, Share
Certificates evidencing unpurchased or untendered Shares will be returned
without expense to the tendering stockholder (or, in the case of Shares tendered
by book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility pursuant to the procedures set forth in Section 3 ("Procedure for
Tendering Shares"), such Shares will be credited to an account maintained at the
Book-Entry Transfer Facility), as promptly as practicable following the
expiration, termination or withdrawal of the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such transfer
or assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering stockholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES. Valid Tenders. Except as set forth
below, in order for Shares to be validly tendered pursuant to the Offer, the
Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, or an Agent's Message
in connection with a book-entry delivery of Shares, and any other documents
required by the Letter of Transmittal, must be received by the Depositary at its
address set forth on the back cover of this Offer to Purchase on or prior to the
Expiration Date and either (i) Share Certificates evidencing tendered Shares
must be received by the Depositary at such address or such Shares must be
tendered pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary, in each case on or
prior to the Expiration Date or (ii) the guaranteed delivery procedures
described below must be complied with. If Share Certificates are forwarded
separately to the Depositary, a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) must accompany each such delivery.
Book-Entry Transfer. The Depositary will make a request to establish
accounts with respect to the Shares at the Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in the system of the
Book-Entry Transfer Facility may make book-entry delivery of Shares by causing
the Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery of
Shares may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer, and any other
documents required by the Letter of Transmittal, must in any case be received by
the Depositary at its address set forth on the back cover of this Offer to
Purchase on or prior to the Expiration Date, or the guaranteed delivery
procedures described below must be complied with.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF
BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. Except as otherwise provided below, all signatures
on a Letter of Transmittal must be guaranteed by a financial institution
(including most banks, savings and loan associations and
39
<PAGE> 42
brokerage houses) which is a member of a recognized Medallion Program approved
by The Securities Transfer Association Inc., including the Securities Transfer
Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP)
and the New York Stock Exchange, Inc. Medallion Signature Program (MSP) (any
such financial institution an "Eligible Institution"). Signatures on a Letter of
Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by
the registered holder of the Shares tendered and such holder has not completed
the box entitled "Special Payment Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (b) if such Shares are tendered
for the account of an Eligible Institution. See Instructions 1 and 5 of the
Letter of Transmittal.
If the Share Certificates are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made, or Share
Certificates not accepted for payment or not tendered are to be returned, to a
person other than the registered holder, the Share Certificates must be endorsed
or accompanied by appropriate stock powers, in either case, signed exactly as
the name of the registered holder appears on such certificates, with the
signatures on such certificates or stock powers guaranteed as aforesaid. See
Instructions 1 and 5 of the Letter of Transmittal.
If Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and any other documents required by the Letter of Transmittal must
accompany each such delivery.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available, or such stockholder cannot deliver the Share Certificates and all
other required documents to the Depositary on or prior to the Expiration Date,
or such stockholder cannot complete the procedure for delivery by book-entry
transfer on a timely basis, such Shares may nevertheless be tendered, provided
that all of the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form made available by Purchaser is received
by the Depositary as provided below on or prior to the Expiration Date; and
(iii) the Share Certificates (or a Book-Entry Confirmation),
representing all tendered Shares in proper form for transfer, together with
the Letter of Transmittal (or a facsimile thereof) properly completed and
duly executed, with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other documents required
by the Letter of Transmittal are received by the Depositary within three
Nasdaq trading days after the date of execution of such Notice of
Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution and a representation that the
stockholder owns the Shares tendered within the meaning of, and that the tender
of the Shares effected thereby complies with, Rule 14e-4 under the Exchange Act,
each in the form set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of Share Certificates for, or of Book-Entry
Confirmation with respect to, such Shares, a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), together with any
required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message), and any other documents required by the Letter of Transmittal.
Accordingly, payment might not be made to all tendering stockholders at the same
time and will depend upon when Share Certificates or Book-Entry Confirmations of
such Shares are received into the Depositary's account at the Book-Entry
Transfer Facility.
Appointment as Proxy. By executing the Letter of Transmittal, a tendering
stockholder irrevocably appoints designees of Purchaser and each of them as such
stockholder's attorneys-in-fact and proxies, with full power of substitution, in
the manner set forth in the Letter of Transmittal, to the full extent of such
40
<PAGE> 43
stockholder's rights with respect to the Shares tendered by such stockholder and
accepted for payment by Purchaser (and with respect to any and all other Shares,
other securities or rights issued or issuable in respect of such Shares on or
after the date hereof). All such powers of attorney and proxies shall be
considered irrevocable and coupled with an interest in the tendered Shares. Such
appointment will be effective when, and only to the extent that, Purchaser
accepts such Shares for payment. Upon such acceptance for payment, all prior
powers of attorney and proxies given by such stockholder with respect to such
Shares will be revoked without further action, and no subsequent powers of
attorney and proxies may be given nor any subsequent written consents executed
(and, if given or executed, will not be deemed effective). The designees of
Purchaser will, with respect to the Shares for which such appointment is
effective, be empowered to exercise all voting and other rights of such
stockholder as they in their sole discretion may deem proper at any annual or
special meeting of the Company's stockholders or any adjournment or postponement
thereof, by written consent in lieu of any such meeting or otherwise. Purchaser
reserves the right to require that, in order for Shares to be deemed validly
tendered, immediately upon Purchaser's payment for such Shares, Purchaser must
be able to exercise full voting rights with respect to such Shares and other
securities, including voting at any meeting of stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right to waive any
defect or irregularity in any tender of Shares of any particular stockholder
whether or not similar defects or irregularities are waived in the case of other
stockholders. No tender of Shares will be deemed to have been validly made until
all defects and irregularities have been cured or waived. None of Purchaser, the
Parent, Holdings, any of their affiliates or assigns, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Backup Federal Income Tax Withholding and Substitute Form W-9. Under the
"backup withholding" provisions of federal income tax law, the Depositary may be
required to withhold 31% of the amount of any payments of cash pursuant to the
Offer. In order to avoid backup withholding, each stockholder surrendering
Shares in the Offer must, unless an exemption applies, provide the payor of such
cash with such stockholder's correct taxpayer identification number ("TIN") on a
substitute Form W-9 and certify, under penalties of perjury, that such TIN is
correct and that such stockholder is not subject to backup withholding. If a
stockholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service ("IRS") may impose
a penalty on such stockholder and payment of cash to such stockholder pursuant
to the Offer may be subject to backup withholding of 31%. All stockholders
surrendering Shares pursuant to the Offer should complete and sign the
substitute Form W-9 included in the Letter of Transmittal to provide the
information and certification necessary to avoid backup withholding (unless an
applicable exemption exists and is proved in a manner satisfactory to the
Depositary). Certain stockholders (including among others all corporations and
certain foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign stockholders should complete and sign a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 of the
Letter of Transmittal.
Other Requirements. Purchaser's acceptance for payment of Shares tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering stockholder and Purchaser upon the terms and
subject to the conditions of the Offer, including the tendering stockholder's
representation and warranty that the stockholder is the holder of the Shares
within the meaning of, and that the tender of the Shares complies with, Rule
14e-4(a)(4) under the Exchange Act.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are
irrevocable except that they may be withdrawn after May 29, 1999 unless
theretofore accepted for payment as provided in this Offer to Purchase. If
Purchaser
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<PAGE> 44
extends the Offer, is delayed in its acceptance for payment of Shares or is
unable to purchase Shares validly tendered pursuant to the Offer for any reason,
then, without prejudice to Purchaser's rights under the Offer, the Depositary
may, on behalf of Purchaser, retain tendered Shares, and such Shares may not be
withdrawn except as otherwise described in this Section 4.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at its address set forth on the back cover of this Offer to Purchase.
Any notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the class and number of Shares to be withdrawn and the
name of the registered holder, if different from that of the person who tendered
such Shares. If the Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then prior to the physical release of the
certificates, the name of the registered holder (if different from the tendering
stockholder) and the serial numbers shown on such certificates must be submitted
to the Depositary, together with a signed notice of withdrawal, the signatures
on which must be guaranteed by an Eligible Institution unless such Shares have
been tendered for the account of any Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfer as set forth in
Section 3 ("Procedures for Tendering Shares"), any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Purchaser, in its sole
discretion, whose determination will be final and binding. Purchaser reserves
the absolute right to reject any and all withdrawals determined by it not to be
in proper form. Purchaser also reserves the absolute right to waive any defect
or irregularity in any withdrawal of Shares of any particular stockholder
whether or not similar defects or irregularities are waived in the case of other
stockholders. No withdrawal of Shares will be deemed to have been validly made
until all defects and irregularities have been cured or waived. None of
Purchaser, the Parent, Holdings, any of their affiliates or assigns, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification.
Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn
will thereafter be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered at any time prior to the
Expiration Date by following one of the procedures described in Section 3
("Procedures for Tendering Shares").
5. PRICE RANGE OF SHARES; DIVIDENDS. According to the Company's 1998
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"1998 Annual Report"), the Shares are listed and traded on Nasdaq under the
symbol "SHCR". The following table sets forth, for the quarters indicated, the
high and low sales prices per Share on Nasdaq with respect to periods occurring
in 1997 and 1998 as reported by the Dow Jones News Service. The Company has
never paid any dividends on Shares.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................. $10 1/16 $ 5 5/8
Second Quarter............................................ 11 1/4 7
Third Quarter............................................. 13 5/8 10 1/8
Fourth Quarter............................................ 16 1/2 12 1/4
YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................. $17 1/2 $12 3/4
Second Quarter............................................ 17 11
Third Quarter............................................. 12 1/2 8 9/16
Fourth Quarter............................................ 9 1/4 6 1/2
</TABLE>
On March 24, 1999, the last full trading day prior to announcement of the
execution of the Merger Agreement, the closing sale price per Share reported on
Nasdaq was $8.50. On March 30, 1999, the last full
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<PAGE> 45
trading day before commencement of the Offer, the closing sale price per Share
reported on Nasdaq was $8.75. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR THE SHARES.
6. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning
the Company contained in this Offer to Purchase, including without limitation
financial information, information concerning the background of the transactions
contemplated by the Merger Agreement, the recommendation of the Company Board,
the presentations, analyses and opinions of the Financial Advisors and the
interests of certain directors and officers of the Company in the transactions
contemplated by the Merger Agreement, has been furnished by the Company or its
representatives or taken from or based upon publicly available reports on file
with the Commission and other public sources. The summary information set forth
below is qualified in its entirety by reference to such publicly available
information (which may be obtained and inspected as described below) and should
be considered in conjunction with the more comprehensive financial and other
information in such reports and other publicly available documents filed by the
Company with the Commission and other publicly available information. Although
Purchaser, Parent and Holdings do not have any knowledge that would indicate
that any statements contained herein based upon such information is untrue,
neither Purchaser, Parent nor Holdings assumes any responsibility for the
accuracy or completeness of such information, or for any failure by the Company
to disclose events that may have occurred and may affect the significance or
accuracy of any such information but which are unknown to Purchaser, Parent and
Holdings.
General. The Company was incorporated in Delaware in January 1994. The
Company's principal executive offices are located at 4651 Sheridan Street, Suite
400, Hollywood, Florida 33021. The telephone number of the Company at such
offices is (954) 987-5822.
The Company is a physician practice management company which provides and
manages practices which provide specialist physician services at hospitals and
ambulatory surgical facilities in the areas of anesthesia, neonatology,
pediatrics, obstetrics and emergency services and owns and operates, or manages,
office-based obstetrical, general surgical, gynecologic-oncology, pain
management, perinatology and primary care practices. The Company derives
substantially all of its revenue from the medical services provided by the
physicians who are employed by the Company or whose practices are managed by the
Company. The Company generates revenue from its specialist physician services by
directly billing third-party payors or patients on a fee-for-service or
discounted fee-for-service basis. In addition, several hospitals at which the
Company provides specialist physician services pay subsidies to the Company to
supplement revenue from billings to third-party payors. The Company generates
revenue from its office-based physician services pursuant to various payment
arrangements, including shared-risk capitation arrangements, fee-for-service or
discounted fee-for-service arrangements and other capitation arrangements.
The Company's objective is to expand its business by increasing the number
of hospitals and other health care facilities at which it provides specialist
physician services, providing physician services in additional specialties to
existing hospital customers and acquiring additional physician practices. One of
the Company's key strategies is to create integrated networks providing women's
and children's healthcare services, consisting of both hospital-based and
office-based physicians in various complementary specialties that support the
Company's hospital customers. As of March 12, 1999, the Company employed, or
managed the practices of, approximately 237 full-time equivalent physicians
practicing under 55 specialty service contracts with 38 health care facilities
and at 28 office locations.
Certain information concerning the directors and executive officers of the
Company is set forth in Schedule II hereto.
Financial Information. Set forth below are certain selected consolidated
financial data for the Company which was derived from the 1998 Annual Report.
More comprehensive financial information (including management's discussion and
analysis of financial condition and results of operations) is included in the
reports and other documents filed by the Company with the Commission, and the
following financial data is qualified in its entirety by reference to such
reports and other documents, including the financial statements and related
notes contained therein and set forth in Schedule I hereto. Such reports and
other documents may
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<PAGE> 46
be examined and copies thereof may be obtained from the offices of the
Commission and Nasdaq in the manner set forth below.
SHERIDAN HEALTHCARE, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Net revenue................................................. $112,990 $98,616 $ 92,767
Operating expenses:
Direct facility expenses.................................. 76,350 68,919 66,125
Provision for bad debts................................... 5,592 4,066 3,605
Salaries and benefits..................................... 7,722 7,424 6,967
General and administrative................................ 4,177 4,900 4,561
Write-down of office-based net assets..................... -- -- 17,360
Amortization.............................................. 3,572 2,096 2,491
Depreciation.............................................. 807 689 1,023
-------- ------- --------
Operating income (loss)..................................... 14,770 10,522 (9,365)
Interest expense, net....................................... 3,955 2,461 2,572
Other expense............................................... (628) -- --
-------- ------- --------
Income (loss) before income taxes and extraordinary item.... 11,443 8,061 (11,937)
Income tax expense (benefit)................................ 5,070 2,894 189
-------- ------- --------
Net income (loss)......................................... $ 6,373 $ 5,167 $(12,126)
======== ======= ========
Net income (loss) per share:
Basic..................................................... $ 0.80 $ 0.77 $ (1.84)
Diluted................................................... 0.78 0.73 (1.84)
BALANCE SHEET DATA (AT PERIOD END)
Working capital............................................. $ 21,079 $13,650 $ 8,336
Total assets................................................ 139,810 87,035 73,408
Long-term debt, net of current portion...................... 56,994 29,833 21,367
Stockholders' equity........................................ 67,547 41,350 35,958
</TABLE>
- - ---------------
According to the Company, the ratios of earnings to fixed charges for the
years ended December 31, 1998 and 1997 were 3.44 to 1.00 and 2.39 to 1.00,
respectively, and the book value per Share as of December 31, 1998 was $8.22.
Certain Projections and Other Information. The Company does not as a
matter of course make public forecasts as to future sales or earnings. However,
in connection with the proposed sale of the Company, the Financial Advisors
distributed in December, 1998 to a select group of potential purchasers
(including Vestar) a Confidential Information Memorandum which included
projections of the Company's financial performance from 1998 to 2003. A summary
of the projections which were included in the Confidential Information
Memorandum is set forth below. The projections have not been updated to, among
other things, reflect actual 1998 results, and do not give effect to the Offer,
the Merger or the Financing.
44
<PAGE> 47
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Total Revenue.......................... $113.8 $172.8 $216.4 $264.6 $313.5 $380.0
EBITDA................................. $20.4 $32.1 $40.6 $52.7 $67.0 $82.9
Net Income............................. $6.5 $9.9 $12.4 $17.2 $22.8 $28.8
Earnings Per Share (on a fully diluted
basis)............................... $0.78 $0.91 $1.06 $1.43 $1.88 $2.36
</TABLE>
The following assumptions, among others, were used by management of the
Company and its subsidiaries in developing the foregoing projections:
1. The Company would complete acquisitions between January 1999 and October
2003 with an aggregate purchase price of $250 million. Such acquisitions
would increase EBITDA by $50.0 million (at the time of acquisition
without giving effect to subsequent internal growth and efficiencies),
and would create $226.0 million of goodwill. Such goodwill would be
amortized over 25 years.
2. The internal growth rate of the Company's existing business would be 10%
per annum excluding the effect of hospital contracts, the termination of
which is presently anticipated.
3. Adequate capital would be available from a variety of sources to fund
the Company's acquisitions and start-up projects.
4. Salaries and benefits and general and administrative expenses are
projected to grow at annual inflation rates of 2.5% in 1999 and 3.0%
from 2000 to 2003.
BECAUSE THE ESTIMATES AND ASSUMPTIONS UNDERLYING THE ABOVE PROJECTIONS ARE
INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES BEYOND
THE COMPANY'S CONTROL, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS
COULD BE REALIZED, OR THAT ACTUAL RESULTS WOULD NOT BE HIGHER OR LOWER THAN
THOSE PROJECTED. MOREOVER, THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO
COMPLYING WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. UNDER NO
CIRCUMSTANCES SHOULD THE INCLUSION OF THE ABOVE PROJECTIONS BE REGARDED AS A
REPRESENTATION, WARRANTY OR PREDICTION THAT ANY PARTICULAR RESULT WILL BE
ACHIEVED OR THAT THE COMPANY, PURCHASE, PARENT, HOLDINGS OR VESTAR CONSIDERS IT
AN ACCURATE PREDICTION OF FUTURE EVENTS OR THAT THE PURCHASER, PARENT, HOLDINGS
OR VESTAR AGREES WITH THE ASSUMPTIONS UNDERLYING SUCH PROJECTIONS. THE
PROJECTIONS ARE INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE SUCH INFORMATION
WAS CONTAINED IN THE CONFIDENTIAL INFORMATION MEMORANDUM PROVIDED TO VESTAR AND
OTHER POTENTIAL PURCHASERS OF THE COMPANY.
Available Information. The Common Stock registered under the Exchange Act.
Accordingly, the Company is subject to the informational filing requirements of
the Exchange Act and in accordance therewith is obligated to file periodic
reports, proxy statements and other information with the Commission relating to
its business, financial condition and other matters. The Company is required to
disclose in such proxy statements certain information, as of particular dates,
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interest of such persons in transactions with the Company. Such
reports, proxy statements and other information should be available for
inspection at the public reference facilities of the Commission located at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also
be available for inspection and copying at prescribed rates at the regional
offices of the Commission located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300,
New York, New York 10048. Such reports, proxy statements and other information
may also be obtained at the Web site that the Commission maintains at
http://www.sec.gov. Copies of this material may also be obtained by mail, upon
payment of the Commission's customary fees, from the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material should
also be available for inspection at the library of Nasdaq, 1735 K Street, N.W.,
Washington, D.C. 20006.
7. CERTAIN INFORMATION CONCERNING PURCHASER, PARENT AND
HOLDINGS. Purchaser, a Delaware corporation and a wholly owned subsidiary of
Parent, was organized for the sole purposes of entering into the Merger
Agreement and consummating the transactions contemplated thereby, including
making the Offer, and has
45
<PAGE> 48
not carried on any activities to date other than those incident to its
formation, entering into the Merger Agreement and certain other agreements
contemplated thereby, and the commencement of the Offer. On March 26, 1999
Purchaser changed it name from Vestar/Calvary, Inc. to Vestar/Sheridan, Inc.
Parent, a Delaware corporation and a wholly owned subsidiary of Holdings,
was organized for the sole purposes of entering into the Merger Agreement and
consummating the transactions contemplated thereby, including making the Offer,
and has not carried on any activities to date other than those incident to its
formation, entering into the Merger Agreement and certain other agreements
contemplated thereby, and the commencement of the Offer. On March 26, 1999
Parent changed its name from Vestar/Calvary Holdings, Inc. to Vestar/Sheridan
Holdings, Inc.
Holdings, a Delaware limited liability company and a wholly owned
subsidiary of Vestar, was organized for the sole purpose of effectuating the
transactions contemplated by the Merger Agreement, and has not carried on any
activities to date other than those incident to its formation, entering into
certain agreements contemplated by the Merger Agreement and the commencement of
the Offer. On March 26, 1999, Holdings changed its name from Vestar/Calvary
Investors, LLC to Vestar/Sheridan Investors, LLC.
Vestar is a Delaware limited partnership formed in 1996 principally for the
purpose of investing in securities.
The sole general partner of Vestar is Vestar Associates III, L.P. ("VA
III"), a Delaware limited partnership. VA III is principally engaged in the
business of investing in securities.
The sole general partner of VA III is Vestar Associates Corporation III
("VAC III"), a Delaware corporation. VAC III is principally engaged in the
business of investing in securities.
At the Effective Time, it currently is anticipated that Parent Common Stock
will be owned approximately 95.2% by Holdings and 4.8% by the Management
Investors.
Each of VAC III, VA III, Vestar, Holdings, Parent and Purchaser have their
principal executive offices at 245 Park Avenue, 41st Floor, New York, New York
10167. The telephone number for each of VAC III, VA III, Vestar, Holdings,
Parent and Purchaser is (212) 351-1600.
Except as set forth in this Offer to Purchase (i) none of Purchaser,
Parent, Holdings, Vestar, VA III and VAC III, nor, to the best knowledge of
Purchaser, Parent, Holdings, Vestar, VA III and VAC III, any of the persons
listed in Schedule III or any associate or majority owned subsidiary of any of
the foregoing or any pension, profit sharing or similar plan of Purchaser,
Parent, Holdings, Vestar, VA III or VAC III, beneficially owns or has a right to
acquire any Shares or any other equity securities of the Company, (ii) none of
Purchaser, Parent, Holdings, Vestar, VA III and VAC III nor, to the best
knowledge of Purchaser, Parent, Holdings, Vestar, VA III and VAC III, any of the
other persons or entities referred to in clause (i) above, has effected any
transaction in the Shares or any other equity securities of the Company during
the past 60 days, (iii) none of Purchaser, Parent, Holdings, Vestar, VA III and
VAC III, nor, to the best knowledge of Purchaser, Parent, Holdings, Vestar, VA
III and VAC III, any of the other persons or entities listed in clause (i)
above, has any contract, arrangement, understanding or relationship with any
person with respect to any securities of the Company, including but not limited
to the transfer or voting thereof, joint ventures, loan or option agreements,
puts or calls, guarantees of loans, guarantees against loss or the giving or
withholding of properties, consents or authorizations, (iv) there have been no
transactions which could require reporting under the rules and regulations of
the Commission between Purchaser, Parent, Holdings, Vestar, VA III or VAC III
or, to the best knowledge of Purchaser, Parent, Holdings, Vestar, VA III and VAC
III, any of the other persons or entities listed in clause (i) above, on the one
hand, and the Company or any of its executive officers, directors or affiliates,
on the other hand, and (v) there have been no contracts, negotiations or
transactions between Purchaser, Parent, Holdings, Vestar, VA III and VAC III or,
to the best knowledge of Purchaser, Parent, Holdings, Vestar, VA III and VAC
III, any of the other persons or entities listed in clause (i) above, on the one
hand, and the Company or any of its subsidiaries or affiliates, on the other
hand, concerning a merger, consolidation, acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets of the Company.
46
<PAGE> 49
For certain other information concerning VAC III, Holdings, Purchaser and
Parent, see Schedule III.
8. DIVIDENDS AND DISTRIBUTIONS. If the Company should, on or after the
date of the Merger Agreement, split, combine or otherwise change the Shares or
its capitalization, or disclose that it has taken any such action, then without
prejudice to Purchaser's rights under Section 9 ("Certain Conditions of the
Offer"), Purchaser may make such adjustments to the purchase price and other
terms of the Offer as it deems appropriate to reflect such split, combination or
other change.
If on or after March 24, 1999, the Company should declare or pay any cash
or stock dividend or other distribution on, or issue any rights with respect to,
the Shares that is payable or distributable to stockholders of record on a date
prior to the transfer to the name of Purchaser or the nominee or transferee of
Purchaser on the Company's stock transfer records of such Shares that are
purchased pursuant to the Offer, then without prejudice to Purchaser's rights
under Section 9 ("Certain Conditions of the Offer"), (i) the purchase price
payable per Share by Purchaser pursuant to the Offer will be reduced to the
extent any such dividend or distribution is payable in cash and (ii) any
non-cash dividend, distribution (including additional Shares) or right received
and held by a tendering stockholder shall be required to be promptly remitted
and transferred by the tendering stockholder to the Depositary for the account
of Purchaser, accompanied by appropriate documentation of transfer. Pending such
remittance or appropriate assurance thereof, Purchaser will, subject to
applicable law, be entitled to all rights and privileges as the owner of any
such non-cash dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by Purchaser in its sole discretion.
9. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision
of the Offer, Purchaser shall not be required to accept for payment or, subject
to any applicable rules and regulations of the Commission, including Rule
14e-l(c) under the Exchange Act (relating to Purchaser's obligation to pay for
or return tendered Shares promptly after termination or withdrawal of the
Offer), pay for any Shares tendered pursuant to the Offer, and may postpone the
acceptance for payment or, subject to the restriction referred to above, payment
for any Shares tendered pursuant to the Offer, and may amend or terminate the
Offer (whether or not any Shares have theretofore been purchased or paid for)
if, prior to the expiration of the Offer, (i) a number of Shares which, together
with any Shares owned by Parent or Purchaser, or any controlled affiliate
thereof, constitutes at least a majority of the voting power (determined on a
fully diluted basis), on the date of purchase, of all the securities of the
Company entitled to vote generally in the election of directors or in a merger
shall not have been validly tendered and not properly withdrawn prior to the
expiration of the Offer, (ii) (A) Purchaser shall not have received funding for
the Offer (1) sufficient to pay for all Shares tendered pursuant to the Offer
and not validly withdrawn and to pay all fees and expenses related to the Offer
and (2) otherwise on the terms and subject to the conditions set forth in the
NationsBank Commitment Letter and (B)(1) the Permanent Facilities (as defined in
the NationsBank Commitment Letter) shall not have been fully executed and
delivered or shall not be in full force or effect or (2) all conditions to
funding under the Permanent Facilities that are required to be, or are capable
of being, satisfied prior to the purchase of the Shares pursuant to the Offer
shall not have been satisfied or (3) there is reason to believe that any of the
other conditions to funding under the Permanent Facilities will not be satisfied
prior to the termination of the Merger Agreement or the Permanent Facilities, or
(iii) at any time on or after March 24, 1999 and prior to the acceptance for
payment of Shares, any of the following conditions occurs or has occurred or
Purchaser makes a good faith determination that any of the following conditions
has occurred:
(a) there shall be pending or threatened any governmental authority
any suit, action or proceeding, or any preliminary or permanent injunction
or order, decree, statute, rule or regulation shall have been entered by
any federal or state court or other governmental authority, or statute,
rule, regulation, legislation, interpretation, judgment or order proposed,
sought, enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to Parent or the Company or any affiliate of Parent or the
Company or the Offer or the Merger, (i) challenging or seeking to restrain
or prohibit or make materially more costly the making of the Offer, the
acceptance for payment of, payment for, some of or all the Shares by
Purchaser or any of its affiliates or the consummation of any of the other
transactions contemplated by the Merger Agreement or seeking to materially
delay the Merger or obtain from Parent or any of its affiliates material
damages; (ii) seeking to prohibit or limit the ownership or operation by
the
47
<PAGE> 50
Company or any of its Controlled Entities or Parent or any of Parent's
affiliates of all or any material portion of the business or assets of the
Company or any of its Controlled Entities or Parent, or any of its
affiliates, or seeking to compel Parent, Purchaser or any of Parent's
abilities to dispose of or hold separate all or any material portion of the
business or assets of the Company or any of its Controlled Entities or
Parent or any of its affiliates; (iii) seeking to impose or confirm
limitations on the ability of Parent or any of Parent's affiliates
effectively to acquire or hold or to exercise full rights of ownership of
Shares, including without limitation the right to vote any Shares on all
matters properly presented to the stockholders of the Company, including
without limitation the adoption of the Merger Agreement, or the right to
vote any shares of capital stock of any subsidiary directly or indirectly
owned by the Company; or (iv) seeking to require divestiture by Parent or
any of Parent's affiliates of any Shares;
(b) there shall have occurred any event that has had or would be
reasonably likely to have a Material Adverse Effect on the Company;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) a
decline of at least 25% in either the Dow Jones Average of Industrial
Stocks or the Standard & Poor's 500 index from the date of the Merger
Agreement, (iii) any material adverse change or any existing or threatened
condition, event or development involving a prospective material adverse
change in United States or other material international currency exchange
rates or a suspension of, or limitation on, the markets therefor, (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (v) any limitation (whether or not
mandatory) by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, on, or any other event that, in
the reasonable judgment of Purchaser, could reasonably be expected to
materially adversely affect the extension of credit by banks or other
lending institutions, (vi) a commencement of a war or armed hostilities or
other national or international calamity directly or indirectly involving
the United States (except for any such event involving Serbia or Iraq) or
materially adversely affecting (or materially delaying) the consummation of
the Offer or (vii) in the case of any of the foregoing existing at the time
of commencement of the Offer, a material acceleration or worsening thereof;
(d) All material licenses, permits, consents, authorizations,
qualifications, orders and approvals of (or filings with) any governmental
authority or other third party (including, without limitation, the consents
of the Company's creditors and of South Broward Hospital District) required
to be obtained, made or received in connection with the execution, delivery
and performance of the Merger Agreement by the Company and the consummation
by the Company of the transactions contemplated thereby shall not have been
obtained, made or received in form and substance reasonably satisfactory to
Parent;
(e) any of the representations and warranties of the Company contained
in the Merger Agreement shall not be true and correct in any material
respect, in each case as if such representations and warranties were made
at the time of such determination;
(f) the Company shall have failed to perform in any material respect
any agreement of the Company contained in the Merger Agreement that is
required to be performed by it prior to the time of such determination;
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company;
(h) any waiting period under the HSR Act applicable to the purchase of
Shares pursuant to the Offer shall not have expired or been terminated; or
(i) to the Company's knowledge, the Company or a Controlled Entity of
the Company is under investigation for any violation of the "Stark" laws,
anti-kickback laws or the laws relating to Medicare, Medicaid, Champus or
any rules or regulations related thereto:
which, in the reasonable judgment of Purchaser with respect to each and every
matter referred to above and regardless of the circumstances (including any
action or inaction by Purchaser or any of its affiliates other than
48
<PAGE> 51
a breach of the Merger Agreement) giving rise to any such condition, makes it
inadvisable to proceed with the Offer or with such acceptance for payment of or
payment for Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser in
whole or in part at any time and from time to time in its sole discretion
(subject to the terms of the Merger Agreement). The failure by Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, the waiver of any such right with respect to particular facts and
other circumstances shall not be deemed a waiver with respect to any other facts
and circumstances, and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
10. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. General. Except as
set forth below, based upon its examination of publicly available filings by the
Company with the Commission and other publicly available information concerning
the Company, none of Purchaser, Parent and Holdings is aware of any licenses or
other regulatory permits that appear to be material to the business of the
Company and its subsidiaries, taken as a whole, that might be adversely affected
by Purchaser's acquisition of Shares (and the indirect acquisition of the stock
of the Company's subsidiaries) as contemplated herein, or of any filings,
approvals or other actions by or with any domestic (federal or state), foreign
or supranational governmental authority or administrative or regulatory agency
that would be required prior to the acquisition of Shares (or the indirect
acquisition of the stock of the Company's subsidiaries) by Purchaser pursuant to
the Offer as contemplated herein. Should any such approval or other action be
required, it is Purchaser's present intention to seek such approval or action.
However, Purchaser does not presently intend to delay the purchase of Shares
tendered pursuant to the Offer pending the receipt of any such approval or the
taking of any such action (subject to Purchaser's right to delay or decline to
purchase Shares if any of the Offer Conditions in Section 9 shall have
occurred). There can be no assurance that any such approval or other action, if
needed, would be obtained without the imposition of substantial conditions that
must be complied with or that adverse consequences might not result to the
business of the Company, Holdings, Parent or Purchaser as a result of the
imposition of such conditions or in the event that such approval was not
obtained or such other action was not taken, any of which could cause Purchaser
to elect to terminate the Offer without the purchase of the Shares thereunder.
Purchaser's obligation under the Offer to accept for payment and pay for Shares
is subject to certain conditions, including conditions relating to the legal
matters discussed in Section 9 ("Certain Conditions of the Offer").
State Takeover Laws. Except as described herein with respect to Section
203 of the DGCL, Purchaser has not attempted to comply with any state takeover
statutes in connection with the Offer. Purchaser reserves the right to challenge
the validity or applicability of any state law allegedly applicable to the Offer
and nothing in this Offer to Purchase nor any action taken in connection
herewith is intended as a waiver of that right. In the event that any state
takeover statute is found applicable to the Offer, Purchaser might be unable to
accept for payment or purchase Shares tendered pursuant to the Offer or be
delayed in continuing or consummating the Offer. In such case, Purchaser may not
be obligated to accept for purchase or pay for, any Shares tendered. See Section
9 ("Certain Conditions of the Offer").
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the FTC and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and certain waiting period requirements have been
satisfied. The acquisition of Shares pursuant to the Offer is subject to such
requirements.
Vestar filed on March 26, 1999 with the FTC and the Antitrust Division a
Premerger Notification and Report Form in connection with the purchase of Shares
pursuant to the Offer. Under the provisions of the HSR Act applicable to the
Offer, the purchase of Shares pursuant to the Offer may not be consummated until
the expiration of a 15-calendar day waiting period following such filing, unless
such waiting period is extended by a request from the FTC or the Antitrust
Division for additional information or documentary material prior to the
expiration of the waiting period. If either the FTC or the Antitrust Division
were to request additional information or documentary material from Vestar, the
waiting period would expire at 11:59 p.m., New York
49
<PAGE> 52
City time, on the tenth calendar day after the date of substantial compliance by
Vestar with such request. Thereafter, the waiting period could be extended only
by court order or by an agreement involving the Parent and the Company. If the
acquisition of Shares is delayed pursuant to a request by the FTC or the
Antitrust Division for additional information or documentary material pursuant
to the HSR Act, the Offer may, but need not, be extended and in any event the
purchase of and payment for Shares will be deferred until ten days after the
request is substantially complied with, unless the waiting period is sooner
terminated by the FTC and the Antitrust Division. See Section 2 ("Acceptance for
Payment and Payment for Shares"). Only one extension of such waiting period
pursuant to a request for additional information is authorized by the HSR Act
and the rules promulgated thereunder, except by court order. Any such extension
of the waiting period will not give rise to any withdrawal rights not otherwise
provided for by applicable law. See Section 4 ("Withdrawal Rights").
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase by
Purchaser of Shares pursuant to the Offer, either of the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of the Parent, its
subsidiaries or the Company. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances.
Although Purchaser believes that the acquisition of Shares pursuant to the
Offer would not violate the antitrust laws, there can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such
challenge is made, what the outcome will be. See Section 9 for the Offer
Conditions, including conditions with respect to litigation and certain
government actions.
Margin Credit Regulations. Federal Reserve Board Regulations G, T, U and X
(the "Margin Credit Regulations") restrict the extension or maintenance of
credit for the purpose of buying or carrying margin stock, including the Common
Stock, if the credit is secured directly or indirectly thereby. Such secured
credit may not be extended or maintained in an amount that exceeds the maximum
loan value of the margin stock. Under the Margin Credit Regulations, the Common
Stock is presently margin stock and the maximum loan value thereof is generally
50% of its current market value. The definition of "indirectly secured"
contained in the Margin Credit Regulations provides that the term does not
include an arrangement with a customer if the lender in good faith has not
relied upon margin stock as collateral in extending or maintaining the
particular credit.
Pending Litigation. On March 29, 1999 and March 31, 1999, purported class
action lawsuits entitled Henner v. Sheridan Healthcare, Inc., et al and Betz v.
Sheridan Healthcare, Inc., et al, respectively, were filed in Delaware Chancery
Court by holders of Shares. The complaints name as defendants the Company, the
directors of the Company and Vestar Capital Partners, Inc. Among other things,
the plaintiffs allege that:
(1) the purchase price is inadequate relative to the market price of the
Shares prior to the announcement of the transactions contemplated by
the Merger Agreement;
(2) the transactions contemplated by the Merger Agreement are timed to take
advantage of the temporarily depressed price of the Shares to the
disadvantage of the public stockholders;
(3) the terms of the transactions contemplated by the Merger Agreement are
the product of a conflict of interest on the part of Dr. Eisenberg and
Dr. Gold and are not fair to the public holders of Shares; and
(4) the defendants violated their fiduciary duties owed to the public
stockholders of the Company by agreeing to the terms of the
transactions contemplated by the Merger Agreement and the timing of
such transactions.
50
<PAGE> 53
The lawsuits seek unspecified damages and costs and to enjoin or rescind
the transactions contemplated by the Merger Agreement, among other things. The
Company, Purchaser, Parent, Holdings and Vestar Capital Partners, Inc. believe
that these lawsuits are wholly without merit.
11. FEES AND EXPENSES. Purchaser has retained Innisfree M&A Incorporated
to act as the Information Agent and American Stock Transfer & Trust Company to
act as the Depositary in connection with the Offer. The Information Agent may
contact holders of Shares by mail, telephone, telex, telegraph and personal
interview and may request brokers, dealers and other nominee stockholders to
forward the Offer materials to beneficial owners. The Information Agent and the
Depositary will receive reasonable and customary compensation for services
relating to the Offer and will be reimbursed for certain out-of-pocket expenses.
Purchaser also has agreed to indemnify the Information Agent and the Depositary
against certain liabilities and expenses in connection with the Offer, including
certain liabilities under the federal securities laws.
Purchaser will not pay any fees or commissions to any broker or dealer or
any other person for soliciting tenders of Shares pursuant to the Offer (other
than to the Information Agent and the Depositary). Brokers, dealers, commercial
banks and trust companies will, upon request, be reimbursed by Purchaser for
reasonable and customary mailing and handling expenses incurred by them in
forwarding offering materials to their customers.
It is estimated that the expenses incurred by the Company, Holdings, Parent
and the Purchaser in connection with the Offer, the Merger and the other
transactions contemplated by the Merger Agreement and the Stockholder Documents
will be approximately as set forth below:
<TABLE>
<S> <C>
Filing Fees................................................. $ 64,750
Financial Advisory Fees and Expenses........................ 3,300,000
Accounting Fees and Expenses................................ 500,000
Financing and Commitment Fees............................... 4,700,000
Legal Fees and Expenses..................................... 2,000,000
Printing and Mailing Costs.................................. 500,000
Miscellaneous............................................... 935,250
-----------
Total:............................................... $12,000,000
</TABLE>
The Surviving Corporation will be responsible for all of the foregoing fees
and expenses if the Effective Time occurs. Under certain circumstances, the
Company is obligated to reimburse the Purchaser for its Expenses and to pay a
Termination Fee; and under certain other circumstances, Parent and Vestar are
obligated to reimburse the Company for its Expenses. See "SPECIAL FACTORS -- The
Merger Agreement and the Management Agreement."
12. MISCELLANEOUS. The Offer is being made solely by this Offer to
Purchase and the related Letter of Transmittal and is being made to all holders
of Shares. Purchaser is not aware of any state where the making of the Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will
make a good faith effort to comply with any such state statute. If after such
good faith effort, Purchaser cannot comply with such state statute, the Offer
will not be made to nor will tenders be accepted from or on behalf of the
holders of Shares in such state. In any jurisdiction where the securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of Purchaser by one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
Purchaser, Parent and Holdings have filed with the Commission the Schedule
14D-1 and Holdings, Parent, Purchaser, the Company and the Executives have
jointly filed with the Commission the Schedule 13E-3, each of which furnishes
certain additional information with respect to the Offer. Such statements and
any amendments thereto, including exhibits, may be inspected and copies may be
obtained from the offices of the Commission (except that they will not be
available at the regional offices of the Commission) in the manner set forth in
Section 6 ("Certain Information Concerning the Company") of this Offer to
Purchase.
51
<PAGE> 54
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER, PARENT OR HOLDINGS NOT CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
VESTAR/SHERIDAN, INC.
March 31, 1999
52
<PAGE> 55
ANNEX A
OPINION OF SALOMON SMITH BARNEY INC.
A-1
<PAGE> 56
[SALOMON SMITH BARNEY LOGO]
March 24, 1999
Board of Directors
Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 200
Hollywood, FL 33021
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares of common stock, $.01
par value per share and Class A common stock, $.01 par value per share
(collectively, the "Company Common Stock"), of Sheridan Healthcare, Inc. (the
"Company"), other than Vestar/Calvary Holdings, Inc. ("Holdings") and its
affiliates and certain members of management of the Company who have agreed to
become stockholders of Holdings (the "Management Stockholders"), of the
consideration to be received by such stockholders (the "Public Stockholders") in
the proposed acquisition of the Company by Holdings, pursuant to the Agreement
and Plan of Merger (the "Merger Agreement") to be entered into by and among
Holdings, Vestar/Calvary, Inc. ("Acquisition Sub") and the Company. We
understand that Holdings and Acquisition Sub are newly formed corporations
organized at the direction of an affiliate of Vestar Capital Partners III, L.P.
("Vestar").
As more specifically set forth in the Merger Agreement, Acquisition Sub
will commence a tender offer (the "Proposed Tender Offer") to purchase all
outstanding shares of Company Common Stock at an offer price of $9.25 per share
in cash. Following consummation of the Proposed Tender Offer, Acquisition Sub
will be merged into the Company (the "Proposed Merger" and, together with the
Proposed Tender Offer, the "Proposed Acquisition") and each then-outstanding
share of Company Common Stock (other than shares held by Holdings, Acquisition
Sub or any other direct or indirect subsidiary of Holdings or held in the
treasury of the Company and shares as to which appraisal rights have been
properly exercised under applicable law) will be converted into the right to
receive, in cash, the amount paid for a share of Company Common Stock pursuant
to the Proposed Tender Offer. We understand that the Management Stockholders
have agreed, among other things, to tender their shares of Company Common Stock
in the Proposed Tender Offer and to subscribe for and purchase shares of common
stock of Holdings.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) a draft dated March 23, 1999 of the
Merger Agreement; (ii) certain publicly available business and financial
information concerning the Company; (iii) certain other information, primarily
financial in nature, including financial forecasts, concerning the business and
operations of the Company furnished to us by the Company for purposes of our
analysis; (iv) certain publicly available information concerning the trading of,
and the trading market for, the Company Common Stock; (v) certain publicly
available information with respect to certain other companies that we believe to
be comparable to the Company and the trading market for certain of such other
companies' securities; and (vi) certain publicly available information
concerning the nature and terms of certain other transactions that we consider
relevant to our inquiry. We have considered and taken into account in our
analysis the Company's lack of, and likely difficulty raising, adequate capital
to fund its growth and acquisition plans if the Company were not to effect the
Proposed Acquisition. We have also considered such other information, financial
studies, analyses, investigations and financial, economic and market criteria
that we deemed relevant. We have also discussed the foregoing, as well as other
matters we believe relevant to our inquiry, with certain officers and employees
of the Company and officers of Vestar.
[SALOMON SMITH BARNEY LETTERHEAD]
A-2
<PAGE> 57
The Board of Directors
Sheridan Healthcare, Inc.
March 24, 1999
Page 2
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all information provided to us
or publicly available and have neither attempted independently to verify nor
assumed responsibility for verifying any of such information. We have further
relied upon the assurances of management of the Company that they are not aware
of any facts that would make any of such information inaccurate or misleading.
We have not conducted a physical inspection of any of the properties or
facilities of the Company, nor have we made or obtained or assumed any
responsibility for making or obtaining any independent evaluations or appraisals
of any of such properties or facilities, nor have we been furnished with any
such evaluations or appraisals. With respect to financial forecasts, we have
been advised by the management of the Company and have assumed that such
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company as to the
future financial performance of the Company. We express no view with respect to
such financial forecasts or the assumptions on which they were based. We have
also assumed that the definitive Merger Agreement will not, when executed,
contain any terms or conditions that differ materially from the terms and
conditions contained in the draft of such agreement we have reviewed and that
the Proposed Acquisition will be consummated in a timely manner and in
accordance with the terms of the Merger Agreement.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company; (ii) the business prospects of the Company, including the likelihood
that, in the absence of additional capital support, the Company would be unable
to pursue its growth and acquisition strategy; (iii) the historical and current
market for the equity securities of certain other companies that we believe to
be comparable to the Company; and (iv) the nature and terms of certain other
merger and acquisition transactions that we believe to be relevant. We have also
taken into account our assessment of general economic, market and financial
conditions as well as our experience in connection with similar transactions and
securities valuation generally. We have also considered the process that
resulted in the negotiation of the Merger Agreement, including our extensive
solicitation of offers to acquire the Company and the responses received to such
solicitation and discussions we had with other potential acquirors.
We have not been asked to consider, and our opinion does not address, the
relative merits of the Proposed Acquisition as compared to any alternative
business strategy that might exist for the Company. Our opinion necessarily is
based upon conditions as they exist and can be evaluated on the date hereof, and
we assume no responsibility to update or revise our opinion based upon
circumstances or events occurring after the date hereof. Our opinion is, in any
event, limited to the fairness, from a financial point of view, of the
consideration to be received by the Public Stockholders in the Proposed
Acquisition and does not address the Company's underlying business decision to
effect the Proposed Acquisition or constitute a recommendation of the Proposed
Acquisition to the Company or a recommendation to any holder of Company Common
Stock as to whether such holder should tender such stock in the Proposed Tender
Offer or as to how such holder should vote with respect to the Proposed Merger,
if such a vote is taken.
As you are aware, Salomon Smith Barney Inc. ("Salomon Smith Barney") is
acting as financial advisor to the Company in connection with the Proposed
Acquisition and will receive a fee for such services, a substantial portion of
which is contingent upon consummation of the Proposed Acquisition. Additionally,
we or our predecessors or affiliates have previously rendered certain investment
banking and financial advisory services to the Company and Vestar for which we
or our predecessors or affiliates received customary compensation. In addition,
in the ordinary course of business, Salomon Smith Barney may hold or actively
trade the securities of the Company for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Salomon Smith Barney and its affiliates (including Citigroup
Inc. and its affiliates) may have other business and financial relationships
with the
A-3
<PAGE> 58
The Board of Directors
Sheridan Healthcare, Inc.
March 24, 1999
Page 3
Company and Vestar.
This opinion is intended solely for the benefit and use of the members of
Board of Directors of the Company in considering the transaction to which it
relates and may not be used for any other purpose or published, reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, without the prior written consent of Salomon Smith Barney, except that
this opinion may be reproduced in full in, and references to the opinion and to
Salomon Smith Barney (in each case in such form as Salomon Smith Barney shall
approve) may be included in, the solicitation/recommendation statement the
Company distributes to holders of Company Common Stock in connection with the
Proposed Tender Offer and any proxy/information statement and rule 13-3
transaction statement filed with the Securities and Exchange Commission in
connection with the Proposed Acquisition.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that, as of the date hereof, the consideration to be received
by the Public Stockholders in the Proposed Acquisition is fair, from a financial
point of view, to such Public Stockholders.
Very truly yours,
SALOMON SMITH BARNEY INC.
A-4
<PAGE> 59
ANNEX B
OPINION OF BOWLES HOLLOWELL CONNER
B-1
<PAGE> 60
[Bowles Hollowell Connor Letterhead]
CONFIDENTIAL
March 24, 1999
Board of Directors
Sheridan Healthcare, Inc.
4651 Sheridan Street
Suite 400
Hollywood, Florida 33021
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the stockholders of Sheridan Healthcare, Inc.
("Sheridan"), excluding certain management stockholders (the "Participating
Management") who have agreed to become stockholders of Vestar/Calvary Holdings,
Inc. ("Holdings"), of the consideration to be received by such stockholders
pursuant to the terms of the Agreement and Plan of Merger, dated as of March 24,
1999 (the "Merger Agreement"), among Holdings, Vestar/Calvary, Inc.
("Purchaser") (Holdings and Purchaser are entities formed at the direction of an
affiliate of Vestar Capital Partners III, L.P. ("Vestar")), and Sheridan. The
Merger Agreement provides, among other things, for (A) Purchaser to make a
tender offer (the "Offer") to purchase for cash all outstanding shares of
Sheridan's common stock, par value $.01 per share, and Class A common stock, par
value $.01 per share (collectively, the "Common Stock"), at a price of $9.25 per
share and (B) the merger (the "Merger") of Purchaser into Sheridan, as soon as
practicable following the expiration or termination of the Offer, with (i) each
share of Common Stock being converted in the Merger into the right to receive
the amount paid per share in the Offer (the amount to be paid per share in the
Offer or the Merger, the "Consideration"), and (ii) each outstanding option to
purchase Sheridan Common Stock exercisable at a price less than $9.25 per share
being converted in the Merger into the right to receive cash in an amount equal
to the Consideration minus such exercise price, and all other options to
purchase Sheridan Common Stock being terminated.
In arriving at our opinion, we have, among other things:
(i) reviewed certain publicly available business and financial
information relating to Sheridan;
(ii) reviewed certain other information, including financial
forecasts, provided to us by Sheridan, and have met with Sheridan's
management to discuss the business and prospects of Sheridan;
(iii) considered certain financial data of Sheridan and compared that
data with similar data for publicly held companies in businesses similar to
those of Sheridan;
(iv) considered the financial terms of certain other business
combinations and other transactions which have recently been effected;
(v) reviewed the financial terms and conditions of the Merger
Agreement; and
(vi) considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria which we
deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting
[Riverfront Plaza Letterhead]
B-2
<PAGE> 61
Board of Directors
March 24, 1999
Page 2
the best currently available estimates and judgments of Sheridan's management as
to the future financial performance of Sheridan. In addition, we have not made
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Sheridan, nor have we been furnished with any such evaluations
or appraisals. Our opinion is necessarily based upon financial, economic, market
and other conditions as they exist and can be evaluated on the date hereof. In
connection with our engagement, we and the Company's co-financial advisor,
Salomon Smith Barney, approached third parties to solicit indications of
interest in a possible acquisition of Sheridan.
We have acted as financial advisor to Sheridan in connection with the Offer
and the Merger and will receive a fee for our services, including for rendering
this opinion, a significant portion of which is contingent upon the consummation
of the Offer and the Merger. As part of our investment banking business, we are
regularly 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.
In the ordinary course of business, we or our affiliates may actively trade
the debt and equity securities of Sheridan for our or any such affiliate's own
account or for the account of customers and, accordingly, may hold a long or
short position in such securities. In addition, we and our affiliates in the
past may have provided investment and commercial banking products and services
for Sheridan, Vestar and their respective affiliates and other related persons.
It is understood that this letter is for the information of the Board of
Directors of Sheridan in connection with its consideration of the Offer and the
Merger and does not constitute a recommendation to any stockholder as to how
such stockholders should vote on the proposed Merger or act with respect to the
Offer. Our opinion does not address the relative merits of the transaction
contemplated by the Merger Agreement as compared to any alternative business
strategies that might exist for Sheridan, nor does it address the effect of any
other business combination in which Sheridan might engage. This letter is not to
be quoted or referred to, in whole or in part, in any registration statement,
prospectus or proxy statement, or in any other document used in connection with
the offering or sale of securities, nor shall this letter be used for any other
purposes, without First Union Capital Markets Corp.'s prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deem relevant, we are
of the opinion that, as of the date hereof, the Consideration is fair from a
financial point of view to holders of Common Stock (other than the Participating
Management, with respect to whom we express no opinion).
Very truly yours,
BOWLES HOLLOWELL CONNER
- - ---------------------------------------------------
BOWLES HOLLOWELL CONNER
A division of First Union Capital Markets Corp.
B-3
<PAGE> 62
SCHEDULE I
FINANCIAL INFORMATION FROM THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
I-1
<PAGE> 63
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Sheridan Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of Sheridan
Healthcare, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sheridan
Healthcare, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 18, 1999 (except for the matter discussed in
Note 11, as to which the date is March 25, 1999).
I-2
<PAGE> 64
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,102 $ 427
Accounts receivable, less allowances of $2,346 and
$1,828................................................. 28,300 21,588
Income tax refunds receivable............................. 1,097 1,280
Deferred income taxes..................................... -- 1,417
Other current assets...................................... 3,316 2,814
-------- -------
Total current assets.............................. 33,815 27,526
Property and equipment, net................................. 4,041 3,538
Intangible assets, net of accumulated amortization of $6,113
and $15,798............................................... 96,802 54,168
Other intangible assets, net of accumulated amortization of
$1,958 and $1,712......................................... 1,501 1,803
Other assets................................................ 3,651 --
-------- -------
Total assets...................................... $139,810 $87,035
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,440 $ 591
Amounts due for acquisitions.............................. 288 527
Accrued salaries and benefits............................. 1,016 2,686
Self-insurance accruals................................... 4,319 3,973
Refunds payable........................................... 2,555 2,674
Accrued physician incentives.............................. 934 744
Other accrued expenses.................................... 1,735 2,235
Current portion of long-term debt......................... 449 446
-------- -------
Total current liabilities......................... 12,736 13,876
Long-term debt, net of current portion...................... 56,994 29,833
Amounts due for acquisitions................................ 1,364 1,976
Other long-term liabilities................................. 1,169 --
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, par value $.01; 5,000 shares authorized;
none issued............................................ -- --
Common stock, par value $.01; 21,000 shares authorized
Voting; 7,535 and 6,509 shares issued and
outstanding........................................... 75 66
Class A non-voting; 297 shares issued and
outstanding........................................... 3 3
Additional paid-in capital................................ 73,626 53,811
Accumulated deficit....................................... (6,157) (12,530)
-------- -------
Total stockholders' equity........................ 67,547 41,350
-------- -------
Total liabilities and stockholders' equity........ $139,810 $87,035
======== =======
</TABLE>
See accompanying notes.
I-3
<PAGE> 65
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Revenue:
Patient service revenue................................... $109,580 $95,418 $ 89,753
Management fees........................................... 3,410 3,198 3,014
-------- ------- --------
Net revenue............................................ 112,990 98,616 92,767
-------- ------- --------
Operating expenses:
Direct facility expenses.................................. 76,350 68,919 66,125
Provision for bad debts................................... 5,592 4,066 3,605
Salaries and benefits..................................... 7,722 7,424 6,967
General and administrative................................ 4,177 4,900 4,561
Write-down of office-based net assets..................... -- -- 17,360
Amortization.............................................. 3,572 2,096 2,491
Depreciation.............................................. 807 689 1,023
-------- ------- --------
Total operating expenses.......................... 98,220 88,094 102,132
-------- ------- --------
Operating income (loss)..................................... 14,770 10,522 (9,365)
-------- ------- --------
Other (income) expense:
Interest expense, net..................................... 3,955 2,461 2,572
Other income.............................................. (628) -- --
-------- ------- --------
Total other expense............................... 3,327 2,461 2,572
-------- ------- --------
Income (loss) before income taxes................. 11,443 8,061 (11,937)
Income tax expense.......................................... 5,070 2,894 189
-------- ------- --------
Net income (loss)................................. $ 6,373 $ 5,167 $(12,126)
======== ======= ========
Net income (loss) per share
Basic.................................................. $ 0.80 $ 0.77 $ (1.84)
Diluted................................................ 0.78 0.73 (1.84)
Weighted average shares of common stock and common stock
equivalents outstanding
Basic.................................................. 7,947 6,722 6,587
Diluted................................................ 8,219 7,035 6,587
</TABLE>
See accompanying notes.
I-4
<PAGE> 66
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
VOTING CLASS A ---------------------------------
COMMON STOCK COMMON STOCK CLASS A CLASS B ADDITIONAL
--------------- --------------- --------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------ ------ ------ ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996..... 5,773 $58 297 $ 3 -- $-- -- $-- $48,179 $ (5,571)
Issuance of common stock in
acquisition................ 658 6 -- -- -- -- -- -- 5,417
Treasury shares purchased and
retired.................... (13) -- -- -- -- -- -- -- (8) --
Net loss..................... -- -- -- -- -- -- -- -- -- (12,126)
----- --- --- --- -- --- -- --- ------- --------
BALANCE, DECEMBER 31, 1996... 6,418 64 297 3 -- -- -- -- 53,588 (17,697)
Issuance of common stock upon
exercise of employee stock
options.................... 77 1 -- -- -- -- -- -- 53 --
Issuance of common stock in
acquisition................ 14 1 -- -- -- -- -- -- 170 --
Net income................... -- -- -- -- -- -- -- -- -- 5,167
----- --- --- --- -- --- -- --- ------- --------
BALANCE, DECEMBER 31, 1997... 6,509 66 297 3 -- -- -- -- 53,811 (12,530)
Issuance of common stock upon
exercise of employee stock
options.................... 23 -- -- -- -- -- -- -- 92 --
Issuance of common stock in
acquisitions............... 1,428 14 -- -- -- -- -- -- 23,410 --
Treasury shares purchased and
retired.................... (425) (5) -- -- -- -- -- -- (3,687) --
Net Income................... -- -- -- -- -- -- -- -- -- 6,373
----- --- --- --- -- --- -- --- ------- --------
BALANCE, DECEMBER 31, 1998... 7,535 $75 297 $ 3 -- $-- -- $-- $73,626 $ (6,157)
===== === === === == === == === ======= ========
<CAPTION>
TOTAL
--------
<S> <C>
BALANCE, JANUARY 1, 1996..... $ 42,669
Issuance of common stock in
acquisition................ 5,423
Treasury shares purchased and
retired.................... (8)
Net loss..................... (12,126)
--------
BALANCE, DECEMBER 31, 1996... 35,958
Issuance of common stock upon
exercise of employee stock
options.................... 54
Issuance of common stock in
acquisition................ 171
Net income................... 5,167
--------
BALANCE, DECEMBER 31, 1997... 41,350
Issuance of common stock upon
exercise of employee stock
options.................... 92
Issuance of common stock in
acquisitions............... 23,424
Treasury shares purchased and
retired.................... (3,692)
Net Income................... 6,373
--------
BALANCE, DECEMBER 31, 1998... $ 67,547
========
</TABLE>
See accompanying notes.
I-5
<PAGE> 67
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 6,373 $ 5,167 $(12,126)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Write-down of office-based net assets................. -- -- 17,360
Amortization.......................................... 3,572 2,096 2,491
Depreciation.......................................... 807 689 1,023
Provision for bad debts............................... 5,592 4,066 3,605
Deferred income taxes................................. 1,417 (263) (1,154)
Changes in operating assets and liabilities:
Accounts receivable, net.............................. (11,140) (7,997) (7,076)
Income tax refunds receivable......................... (101) (710) 190
Other current assets.................................. (736) (1,125) (486)
Other assets.......................................... 238 (655) 207
Accounts payable and accrued expenses................. (1,221) (215) 1,229
-------- -------- --------
Net cash provided by operating activities............. 4,801 1,053 5,263
-------- -------- --------
Cash flows from investing activities:
Investments in management agreements and acquisitions of
physicians practices.................................. (26,428) (10,929) (13,762)
Sale of physician practices.............................. 49 3,388 193
Capital expenditures..................................... (1,192) (934) (1,245)
-------- -------- --------
Net cash used by investing activities................. (27,571) (8,475) (14,814)
-------- -------- --------
Cash flows from financing activities:
Borrowings on long-term debt............................. 27,600 9,005 13,997
Payments on long-term debt............................... (555) (1,210) (4,438)
Treasury shares purchased and retired.................... (3,692) -- (8)
Exercise of employee stock options....................... 92 54 --
-------- -------- --------
Net cash provided by financing activities............. 23,445 7,849 9,551
-------- -------- --------
Increase in cash and cash equivalents...................... 675 427 --
Cash and cash equivalents, beginning of year............... 427 -- --
-------- -------- --------
Cash and cash equivalents, end of year..................... $ 1,102 $ 427 $ --
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest..................................... $ 3,898 $ 2,338 $ 2,588
Cash paid for income taxes................................. 2,350 3,867 2,110
Capital leases entered into................................ -- -- --
</TABLE>
See accompanying notes.
I-6
<PAGE> 68
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Sheridan Healthcare, Inc. (the "Company") was established in November 1994
concurrently with its purchase of the common stock of Sheridan Healthcorp, Inc.
(formerly, Southeastern Anesthesia Management Associates, Inc.) (the
"Predecessor") (the "1994 Acquisition") for $43.3 million in cash. The
acquisition was accounted for as a purchase, and accordingly, the purchase price
was allocated to the net assets acquired based on their estimated fair market
values at the date of acquisition. The management group of the Predecessor held
approximately 20% of its outstanding common stock prior to the acquisition and
became the management group of the Company, holding approximately 18% of its
outstanding common stock and equivalents after the acquisition. Accordingly, 18%
of the purchase price was considered a distribution to management stockholders
in excess of their basis in the common stock of the Predecessor, which was
approximately $249,000. Such excess was recorded as excess purchase price
distributed to management stockholders and included as a reduction to additional
paid in capital in the accompanying balance sheets and was not allocated to the
net assets acquired. As a result of the allocation, $31.2 million of the
purchase price was allocated to goodwill.
<TABLE>
<S> <C>
Purchase price.............................................. $43,275
Excess purchase price distributed to management
stockholders.............................................. (7,541)
-------
Purchase price to be allocated............................ 35,734
-------
Net assets acquired:
Working capital........................................... 4,365
Property and equipment.................................... 1,236
Other intangible assets (see Note (g)).................... 1,880
Unamortized goodwill related to previous acquisition...... 7,316
Other assets.............................................. 609
Long-term debt............................................ (9,580)
Deferred income taxes..................................... (1,247)
-------
Total net assets acquired......................... 4,579
-------
Goodwill related to the 1994 Acquisition.................... $31,155
=======
</TABLE>
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries and other entities in which the Company has
a controlling financial interest.
In November 1997, the Emerging Issues Task Force ("EITF") reached a
consensus on when a physician practice management company ("PPM") has
established a controlling financial interest in a physician practice through a
contractual management service agreement ("MSA"). A controlling financial
interest must exist in order for a PPM to consolidate the operations of an
affiliated physician practice. The consensus is addressed in EITF Issue 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities".
A controlling financial interest exists between a PPM and an affiliated
physician practice if all of the following six requirements are met; (i) the MSA
has a term that is either the entire remaining legal life of the physician
practice entity or a period of 10 years or more; (ii) the MSA is not terminable
by the physician practice except in the case of gross negligence, fraud or other
illegal acts by the PPM or bankruptcy of the PPM; (iii) the PPM has exclusive
authority over all decision making relating to ongoing major or central
operations of the physician practice, except for the dispensing of medical
services; (iv) the PPM has exclusive authority over all decision making related
to total practice compensation of the licensed medical professionals
I-7
<PAGE> 69
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as well as the ability to establish and implement guidelines for the selection,
hiring and firing of them; (v) the PPM must have a significant financial
interest that is unilaterally salable or transferable by the PPM; and (vi) the
PPM must have a significant financial interest that provides it with the right
to receive income, both as on-going fees and as proceeds from the sale of its
interest in the physician practice, in an amount that fluctuates based on the
performance of the operations (a net profit interest) of the physician practice
and the change in the fair value thereof.
The Company is following the above controlling financial interest
provisions of EITF Issue 97-2 in its determination of whether the operations of
an affiliated physician practice qualify for consolidation. The Company's
controlling financial interest is demonstrated by means other than direct record
ownership of voting stock based on the provisions of its purchase agreements,
voting trust agreements or management agreements with these entities.
In accordance with EITF Issue 97-2 the Company's consolidated financial
statements include four practices that are affiliates of the Company, Sheridan
Medical Healthcorp, P.C., Sheridan Healthcare of Texas, P.A., Sheridan
Children's Healthcare Services of Pennsylvania, P.C. and Sheridan Healthcare of
California Medical Group, Inc. Each of these affiliates is owned by Gilbert
Drozdow, as a nominee shareholder, who is an executive officer and stockholder
of the Company. These entities have long-term management agreements with the
Company whose terms demonstrate a controlling financial interest by the Company.
The practices provide hospital-based physician services to four hospitals and
have been included in the Company's consolidated financial statements since the
date of their inception. In addition, the Company's consolidated financial
statements also include eleven office-based practices and one hospital-based
practice with which the Company has long-term management services agreements and
purchase option agreements whose terms also demonstrate a controlling financial
interest, (the "Consolidated Practices"). These agreements entered into during
1997 and 1998, have been accounted for in the Company's consolidated financial
statements in accordance with EITF 97-2 and have been included in the Company's
financial statements since the date of their inception.
The Company provides management services to a neonatology practice and a
pain management practice which entered into long-term management services
agreements with the Company in December 1997 and February 1998, respectively.
The Company also provided management services to a primary care practice whose
agreement was terminated in December 1997 and to a primary care practice whose
agreement was terminated in April 1998. The Company did not have a controlling
financial interest in these practices. These management services agreements are
included in the Company's consolidated financial statements only to the extent
of management fees earned and expenses incurred by the Company.
The Company exercised its purchase option on December 31, 1998 to acquire
the pain management practice to which it had been providing management services
during 1998. The practice has been included in the Company's consolidated
balance sheet as of December 31, 1998 and will be included in the Company's
consolidated financial statements beginning January 1, 1999.
I-8
<PAGE> 70
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below sets forth the components of the Company's net revenue:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
----------------- ---------------- ----------------
TOTAL % TOTAL % TOTAL %
-------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
The Company......................... $ 72,070 63.8% $76,850 77.9% $77,833 83.9%
Affiliates.......................... 13,309 11.8 12,511 12.7 11,920 12.8
Consolidated Practices.............. 24,201 21.4 6,057 6.2 -- --
-------- ----- ------- ----- ------- -----
Patient service revenue........ 109,580 97.0 95,418 96.8 89,753 96.7
-------- ----- ------- ----- ------- -----
Management fees..................... 3,410 3.0 3,198 3.2 3,014 3.3
-------- ----- ------- ----- ------- -----
Total..................... $112,990 100.0% $98,616 100.0% $92,767 100.0%
======== ===== ======= ===== ======= =====
</TABLE>
(c) Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
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. Actual results could differ from those estimates.
(d) Accounts Receivable and Net Revenue
The Company generates revenue from the provision of physician and services
which is referred to as patient service revenue and the provision of management
services which are referred to as management fees.
The Company derives substantially all of its patient service revenue from
various third-party payors including Medicare and Medicaid programs, health
maintenance organizations, commercial insurers and others. The amount of
payments received from such third-party payors is dependent upon mandated
payment rates in the case of the Medicare and Medicaid programs, and negotiated
payment rates in the case of other third-party payors, as well as the specific
benefits included in each patient's applicable health care coverage. The Company
records its revenues net of an allowance for contractual adjustments which
represents the difference between billed charges and expected collections from
third-party payors. Accordingly, net revenue and accounts receivable are
reflected in the consolidated financial statements net of contractual
allowances.
The Company received a portion of its patient service revenue pursuant to
shared-risk capitation arrangements with certain health maintenance
organizations until April 1998, at which time it sold its only remaining primary
care practice providing services under such arrangements. Under these
arrangements, the Company generally agreed to provide certain health care
services to enrollees of the health maintenance organization in exchange for a
fixed amount per enrollee per month. The Company directly provided primary care
services to the enrollees and subcontracted directly, or through a third-party
payor, with specialist physicians, hospitals and other health care providers to
provide the remainder of the health care services to the enrollees. The
Company's profitability under such arrangements was dependent upon its ability
to effectively manage the use of specialist physician, hospital and other health
care services by its patients. In each of the fiscal periods presented in the
Company's statements of operations, amounts received from managed care
organizations under shared-risk capitation arrangements exceeded the cost of
services provided to patients under such arrangements.
The Company derives its management fees pursuant to long-term management
services agreements with physician practices which require the practice to pay
the Company a management fee that is based on expenses incurred by the Company
plus either a percentage fee based on net revenues or a flat fee. The
I-9
<PAGE> 71
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's management fee may be increased under a flat fee arrangement if the
net revenue of the practice exceeds established thresholds, but may not be
reduced.
(e) Charity Care
The Company has agreed with certain hospitals to provide charity care to
patients who are unable to pay or is required by law, in some cases, to provide
such care in emergency situations. Such patients are identified based on
financial information obtained from the patients and subsequent analysis. Since
management does not expect payment for such charity care, the estimated charges
related to such patients are included in the provision for bad debts in the
accompanying financial statements, the amounts which are immaterial.
(f) Intangible Assets
The Company acquires or affiliates with physician practices through the
acquisition of their net assets, the acquisition of their stock or the
acquisition of an option to acquire their stock concurrent with the execution of
a long-term management services agreement. In each of these transactions the
Company allocates the purchase price to the tangible assets acquired and
liabilities assumed. The excess of the purchase price over the fair value of
assets acquired and liabilities assumed is allocated to intangible assets as
goodwill when the Company acquires the net assets or outstanding stock of a
physician practice and to intangible assets as the cost of obtaining the
management services agreement when the Company enters into a long-term
management services agreement and purchases the option to acquire the
outstanding stock of a physician practice.
Approximately $27.8 million of the total amount of intangible assets is
goodwill, net of accumulated amortization, at December 31, 1998, that is related
to the 1994 Acquisition. Such goodwill represents the Company's market position
and reputation, its relationships with its hospital customers and affiliated
physicians, the relationships between its affiliated physicians and their
patients, and other similar intangible assets. Management believes its role as a
long-term service provider to its hospital customers and the fact its
relationships with hospitals are not tied to a single physician or group of
physicians contribute to the indefinite length of this goodwill, and
accordingly, such goodwill is being amortized on a straight-line basis over 40
years.
Approximately $25.8 million of the total amount of intangible assets is
goodwill, net of accumulated amortization, at December 31, 1998, related to
several acquisitions of physician practices by the Company and its Predecessor.
Such goodwill represents the general reputation of the practices in the
communities they serve, the collective experience of the management and other
employees of the practices, contracts with health maintenance organizations,
relationships between the physicians and their patients, patient lists, and
other similar intangible assets. The Company evaluates the underlying facts and
circumstances related to each acquisition and establishes an appropriate
amortization period for the related goodwill. The goodwill related to these
physician practice acquisitions is being amortized on a straight-line basis over
periods ranging from 20 to 25 years.
Approximately $43.2 million of the total amount of intangible assets
represents the cost of obtaining management services agreements, net of
accumulated amortization at December 31, 1998. The cost of obtaining management
services agreements with practices is related to the general reputation of the
practices in the communities they serve, contracts with third-party payors,
relationships between the physicians and their patients, patient lists, the
Company's ability to integrate the practice into its existing group of hospital-
based and office-based specialists and the term and enforceability of the
management services agreement. The Company evaluates the underlying facts and
circumstances related to each agreement and establishes an appropriate
amortization period related to the cost of obtaining the management services
agreement. The cost of obtaining these management services agreements is being
amortized over the shorter of the term of the agreement or 25 years.
I-10
<PAGE> 72
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's intangible assets segregated by
amortization period are as follows:
<TABLE>
<CAPTION>
ORIGINAL BALANCE
AMORTIZATION PERIOD AMOUNT DECEMBER 31, 1998
- - ------------------- -------- -----------------
<S> <C> <C>
Physician Practice Acquisitions and Affiliations:
20 years............................................... 3,121 2,185
25 years............................................... 68,834 66,818
-------- -------
Sub-Total.............................................. 71,955 69,003
1994 Acquisition:
40 years............................................... 30,960 27,799
-------- -------
Total.................................................. $102,915 $96,802
======== =======
</TABLE>
The SEC has recently provided guidance in regards to the appropriate
amortization periods to be used in connection with the amortization of
intangible assets within the physician practice management industry. The
guidance provided has caused several companies within the industry that were
amortizing intangible assets over periods in excess of 25 years to prospectively
change the amortization period of their intangible assets to 25 years. This
change in estimate has resulted in an increase in the amortization expense
reported by those companies. Effective July 1998, the Company reduced the
maximum amortization period of its intangible assets related to physician
practice acquisitions and affiliations to 25 years on a prospective basis. This
resulted in an increase in amortization expense for the year ended December 31,
1998 of approximately $60,000 compared to the amortization that would have been
recorded. A significant change in the estimated useful lives of certain
intangible assets of the Company could have an adverse impact on its future net
income and reported earnings per share. Such an accounting change, if made,
would have no impact on the Company's cash flow or operations nor would it
reflect a change in management's estimate of the value and expected duration of
such intangible assets.
The Company continuously evaluates whether events have occurred or
circumstances exist which impact the recoverability of the carrying value of
intangible assets, pursuant to Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, ("SFAS No. 121")." Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeded the fair value of the
assets. See Note (j) below for a description of an adjustment to reduce the
carrying values of certain components of goodwill to their net realizable values
during 1996.
Separately identifiable intangible assets related to the 1994 Acquisition
and the physician practice acquisitions are included in other intangible assets,
separate from intangible assets, and are discussed in Note (g) below.
(g) Other Intangible Assets
Other intangible assets consist primarily of the physician employee
workforce, non-physician employee workforce, management team and computer
software acquired in the 1994 Acquisition, deferred acquisition costs, deferred
loan costs and non-compete covenants related to certain acquisitions of
physician practices. These intangible assets are being amortized over the lives
of the underlying assets or agreements, which range from five to seven years.
See Note (j) below for a description of an adjustment to reduce the carrying
values of certain other intangible assets to their net realizable values during
1996.
I-11
<PAGE> 73
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Amounts Due for Acquisitions
Amounts due for acquisitions includes obligations to the former
stockholders of certain physician practices acquired by the Company. The
obligations to former stockholders arose at the time of acquisition as a result
of negotiation between the Company and the former stockholders of the practices
acquired by the Company who desired ongoing compensation in excess of a
reasonable market rate for their physician services. These payments are being
made to former stockholders who are employed by the Company over the terms of
their employment agreements with the Company which range from three to five
years. These payments cease upon termination of the physicians' employment with
the Company. It also includes termination benefits payable to the former
stockholders of an acquired practice, which are payable beginning in 2001 or
upon termination of their employment by the Company, whichever is later. These
termination benefits were an obligation of the practice prior to acquisition by
the Company and were included as part of the purchase price allocation at the
time of acquisition. Also included in amounts due for acquisitions is a
promissory note payable to the owner of a physician practice with which the
Company has a management services agreement. The note bears interest at 7.5%, is
payable in monthly installments and matures in December 2000.
(i) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. Accounts receivable, other current assets, other
assets, accounts payable, accrued expenses and long-term debt are reflected in
the accompanying consolidated financial statements at cost which approximates
fair value.
(j) Write-down of Office-based Net Assets
In October 1996, the Company's Board of Directors approved a change in the
Company's strategic direction which was to place more emphasis on its
hospital-based business and to reduce its emphasis on the primary care business,
and its intent to dispose of non-strategic office-based physician practices. Due
to this change in strategic direction, the Company wrote down certain assets
related to its office-based operations to their estimated realizable values in
accordance with SFAS No. 121 and accrued certain liabilities for commitments
that no longer have value to the Company's future operations. The impairment of
intangible assets was calculated based on a comparison of the carrying amount of
those assets compared to the undiscounted cash flows of the operations over the
remaining amortization period. The write-down pertained to two rheumatology
practices acquired in January and February of 1996, a four-facility primary care
practice acquired in September 1994, two primary care practices acquired in
February 1995, and a primary care practice acquired in June 1995 which included
the assignment of a panel services agreement. These adjustments resulted in a
$17.4 million charge to earnings in 1996, which is comprised of adjustments to
the following assets and liabilities (in thousands):
<TABLE>
<S> <C>
Goodwill................................................... $13,878
Property and equipment..................................... 1,045
Intangible assets.......................................... 430
Accrued expenses........................................... 2,007
-------
Total write-down................................. $17,360
=======
</TABLE>
(k) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
I-12
<PAGE> 74
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(l) Net Income (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share", ("SFAS No.
128"). SFAS No. 128 simplifies the current standards for computing earnings per
share ("EPS") under Accounting Principles Board Opinion No. 15, "Earnings per
Share" by replacing the existing calculation of primary EPS with a basic EPS
calculation. It requires a dual presentation for complex capital structures of
basic and diluted EPS on the face of the income statement and requires a
reconciliation of basic EPS factors to diluted EPS factors. The impact of
adopting SFAS No. 128 in 1997 was immaterial. Common stock equivalents, which
consist of stock options issued to employees and directors, are not included in
the determination of the net loss per diluted share in 1996 since they would
have the effect of reducing the net loss per share.
RECONCILIATION OF BASIC EPS FACTORS TO DILUTED EPS FACTORS:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Weighted average shares of common stock and common
stock equivalents for basic earnings per share.... 7,947 6,722 6,587
Impact of dilutive employee stock options........... 272 313 --
----- ----- -----
Weighted average of shares of common stock
equivalents for diluted earnings per share........ 8,219 7,035 6,587
===== ===== =====
Options outstanding which are not included in the
calculation of diluted earnings per share because
their impact is anti-dilutive..................... 518 73 223
===== ===== =====
</TABLE>
(n) New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS
No. 130"), which was adopted in the first quarter of fiscal 1998. This statement
established standards for the reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. This
statement requires that an enterprise (a) classify items of other comprehensive
income by their nature in financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of statements of financial
position. Comprehensive income is defined as the change in equity during the
financial reporting period of a business enterprise resulting from non-owner
sources. The Company currently does not have other comprehensive income and
therefore the adoption of SFAS No. 130 did not have a significant impact on its
financial statement presentation as comprehensive income is equal to net income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", ("SFAS No. 131"), which is required to be
adopted in fiscal 1998. This statement requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments including, among other things, a measure of segment profit or
loss, certain specific revenue and expense items, and segment assets. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items
and segment assets. The Company adopted SFAS No. 131 effective December 31,
1998. Management does not conduct its business in a manner that indicates the
existence of segments or allocate its management services by distinguishable
business segments. As a result, no additional disclosure was required.
I-13
<PAGE> 75
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits", ("SFAS No. 132") which is effective
for fiscal years ending after December 15, 1997. SFAS No. 132 revises employers'
disclosures about pension and other postretirement obligations of those plans.
The Company adopted SFAS No. 132 effective December 31, 1998 which did not have
a significant impact on its financial statement disclosures.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", ("SOP 98-1"). SOP
98-1 requires computer software costs associated with internal use software to
be expensed as incurred until certain capitalization criteria are met. The
Company will adopt SOP 98-1 beginning January 1, 1999. Adoption of this
statement will not have a material impact on the Company's consolidated
financial position or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities", ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company's accounting policies conform with the
requirements of SOP 98-5, therefore adoption of this statement will not impact
the Company's consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 cannot be applied retroactively. The Company will adopt SFAS No. 133
beginning January 1, 2000. The Company does not believe that the adoption of
this statement will have a material impact on the Company's consolidated
financial position or results of operations.
(2) ACQUISITIONS
In September 1994, the Predecessor acquired a four-facility primary care
practice for cash and notes and the assumption of certain contingent
obligations. The aggregate purchase price was $8.7 million, including the effect
of certain adjustments to the purchase price recorded in 1995 based on
subsequent information. The acquisition was accounted for as a purchase, and
accordingly, the purchase price was allocated to the net assets acquired based
on their estimated fair market values. As a result of this allocation, $8.2
million of the purchase price was allocated to goodwill, which was amortized
over 20 years until the sale of the practice by the Company and is shown below,
(in thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $8,723
------
Net assets acquired:
Working capital (deficit).............................. (355)
Property and equipment................................. 868
------
Net assets acquired............................... 513
------
Goodwill related to the acquisition......................... $8,210
======
</TABLE>
In connection with the write-down of office-based net assets in 1996, as
discussed in Note 1(j), the carrying value of the goodwill associated with this
acquisition was reduced by approximately $5.3 million to approximately $2.1
million.
I-14
<PAGE> 76
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1994, the Company acquired an obstetrical practice for $1.4
million in cash and deferred payments. The acquisition was accounted for as a
purchase, and accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair market values. As a result of this
allocation, $841,000 of the purchase price was allocated to goodwill which, net
of the reduction in carrying value, is being amortized over 20 years and in
shown below, (in thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $1,437
------
Net assets acquired:
Working capital........................................ 118
Property and equipment................................. 78
Intangible assets...................................... 400
------
Net assets acquired............................... 596
------
Goodwill related to the acquisition....................... $ 841
======
</TABLE>
In connection with the write-down of office-based net assets in 1996, as
discussed in Note 1(j), the carrying value of the goodwill associated with this
acquisition was reduced by approximately $170,000 to approximately $583,000.
During the period from February to June 1995, the Company made five
acquisitions of office-based physician practices for an aggregate of $6.1
million in cash and deferred payments. In a transaction related to one of those
acquisitions, one of the principal physicians operating the acquired practices
assigned a panel services agreement with a health maintenance organization to
the Company for $400,000 in cash plus deferred payments of $935,000 and
approximately 35,000 shares of common stock of the Company which had a value of
approximately $450,000 on the date of acquisition. These acquisitions, including
the assignment of the panel services agreement, were accounted for as purchases,
and accordingly, the purchase prices were allocated to the net assets acquired
based on their fair market values. As a result of these allocations, $7.3
million of the aggregate purchase price was allocated to goodwill which, net of
the reduction in carrying value, is being amortized over 20 years on a straight
line basis and is shown below, (in thousands):
<TABLE>
<S> <C>
Aggregate purchase price.................................... $7,880
------
Net assets acquired:
Working capital........................................... 144
Property and equipment.................................... 358
Intangible assets......................................... 30
------
Net assets acquired............................... 532
------
Goodwill related to the acquisitions...................... $7,348
======
</TABLE>
In connection with the write-down of office-based net assets in 1996, as
discussed in Note 1(j), the carrying value of the goodwill associated with these
acquisitions was reduced by approximately $5.0 million to approximately $1.0
million.
In March 1996, the Company acquired a hospital-based physician practice for
$4.2 million in cash and approximately 658,000 shares of the Company's common
stock which had a value of approximately $5.4 million on the date of
acquisition. The acquisition was accounted for as a purchase, and accordingly,
the purchase price was allocated to the net assets acquired based on their fair
market values. As a result of this
I-15
<PAGE> 77
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allocation, $9.8 million of the purchase price was allocated to goodwill which
is being amortized over 25 years on a straight line basis and is shown below (in
thousands):
<TABLE>
<S> <C>
Aggregate purchase price................................... $ 9,644
-------
Net assets acquired:
Working capital....................................... 1,407
Property and equipment................................ 78
Accrued termination benefits.......................... (1,100)
Long-term debt........................................ (500)
-------
Net assets acquired.............................. (115)
-------
Goodwill related to the acquisition........................ $ 9,759
=======
</TABLE>
During the period from January to October 1996, the Company made five
acquisitions of office-based physician practices for an aggregate of $8.2
million in cash and deferred payments. These acquisitions were accounted for as
purchases, and accordingly, the purchase price of each acquisition was allocated
to the net assets acquired based on their estimated fair market values. As a
result of these allocations, $6.8 million of the aggregate purchase price was
allocated to goodwill which, net of the reduction in carrying value, is being
amortized over 20 years on a straight line basis and is shown below (in
thousands):
<TABLE>
<S> <C>
Aggregate purchase price................................... $ 8,210
-------
Net assets acquired:
Working capital....................................... 830
Property and equipment................................ 670
Intangible assets..................................... 60
Long-term debt........................................ (130)
-------
Net assets acquired.............................. 1,430
-------
Goodwill related to the acquisitions....................... $ 6,780
=======
</TABLE>
In connection with the write-down of office-based net assets in 1996, as
discussed in Note 1(j), the carrying value of the goodwill associated with these
acquisitions was reduced by approximately $3.4 million to approximately $1.2
million.
During the period from March 1997 to December 1997, the Company purchased
options to acquire five office-based physician practices and one hospital-based
physician practice for an aggregate of $10.8 million in cash and approximately
14,000 shares of the Company's common stock which had a value of approximately
$200,000 on the date of acquisition. Concurrent with each acquisition of an
option the Company entered into a long-term management services agreement with
each practice. These transactions were accounted for as purchases, and
accordingly, the purchase price of each option was allocated to the net assets
acquired based on their estimated fair market values. As a result of these
allocations, $11.1 million of the aggregate purchase
I-16
<PAGE> 78
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price was allocated to the cost of the management services agreements which is
being amortized over the shorter of the term of the agreement or 25 years and is
shown below (in thousands):
<TABLE>
<S> <C>
Aggregate purchase price................................... $11,012
-------
Net assets acquired:
Working capital.......................................... (390)
Property and equipment................................... 218
Intangible assets........................................ 111
-------
Net assets acquired.............................. (61)
-------
Net cost of management services agreements................. $11,073
=======
</TABLE>
During the period from January 1998 to September 1998 the Company completed
thirteen transactions with physician practices for aggregate consideration of
approximately $49.1 million of which approximately $25.5 million was paid in
cash and approximately $23.6 million was paid through the issuance of
approximately 1,428,000 shares of the Company's common stock. Approximately $5.2
million was paid for the acquisition of practices' net assets or practices'
stock and approximately $43.9 million was paid for the purchase of options to
acquire the practices' stock for a nominal amount concurrent with the execution
of long-term management services agreements. In each transaction, the
consideration was allocated to the net assets acquired based on their estimated
fair market values. As a result of these allocations, $43.1 million of the
aggregate consideration was allocated to the cost of management services
agreements which are being amortized over 25 years and $5.3 million was
allocated to goodwill which is also being amortized over 25 years as shown below
(in thousands):
<TABLE>
<S> <C>
Aggregate purchase price................................... $49,050
-------
Net assets acquired:
Working capital.......................................... 159
Property and equipment................................... 452
Intangible assets........................................ 80
-------
Net assets acquired.............................. 691
-------
Goodwill and net cost of management services agreements.... $48,359
=======
</TABLE>
The value of the Company's common stock issued in connection with each
transaction is based on the higher of the closing market price for the Company's
common stock on the date each transaction is completed or the price guaranteed
by the Company on some future date. In connection with the issuance of the
Company's common stock as consideration for the acquisition of certain physician
practices, the Company is obligated to make additional payments to the sellers
of the practices which are contingent on the market price of the Company's
common stock upon a specified date following the date of the transaction. In
most cases, the Company has the option to satisfy the contingent obligation
either by making an additional cash payment or by the issuance of additional
shares of the Company's common stock. Such shares have been excluded from the
calculation of diluted earnings per share because of management's ability to
fund the additional purchase price, if any, through cash payments rather than
through the issuance of additional shares. Based on the closing market price of
the Company's common stock on December 31, 1998 the total value of the
contingencies was approximately $12.0 million.
The following table summarizes the pro forma consolidated results of
operations of the Company as though the transactions with physician practices
discussed above had occurred at the beginning of the period presented. The pro
forma consolidated results of operations shown below do not necessarily
represent what the consolidated results of operations of the Company would have
been if these acquisitions had actually occurred
I-17
<PAGE> 79
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at the beginning of the period presented, nor do they represent a forecast of
the consolidated results of operations of the Company for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Pro Forma Results of Operations:
Net revenue.................................... $119,224 $123,924
Income before income taxes..................... 12,163 11,816
Net income..................................... 6,756 7,103
Net income per share -- basic.................. 0.83 0.90
Net income per share -- diluted................ 0.80 0.87
</TABLE>
In connection with the change in the Company's strategic direction, as
discussed in Note 1(j), the Company sold one primary care office location in
December 1996 and one in February 1997, four rheumatology office locations in
April 1997 and one primary care location in December 1997. The Company
consolidated the remaining practices to be sold from five office locations into
three office locations, which employ five primary care physicians. Two of these
primary care office locations were sold in April 1998. The office-based
practices which have been sold, and which the Company currently intends to sell,
include the four-facility practice acquired on September 1, 1994, two primary
care practices acquired in February 1995, a three-facility primary care practice
acquired in June 1995 and two rheumatology practices acquired in 1996.
The sale of the rheumatology offices in 1997 generated a gain of
approximately $75,000 based on the adjusted carrying value of the practices' net
assets. The sale of the primary care practices in April 1998 generated a gain of
approximately $240,000 based on the adjusted carrying value of the practice's
net assets, offset by a similar loss on the sale of net assets in connection
with the Company's termination of a management services agreement in April 1998.
The sale of primary care practices in December 1996, February 1997 and December
1997 did not generate significant gains or losses as these practices were sold
for the approximate book value of their net assets.
(3) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation, and
is depreciated using straight-line and accelerated methods over the estimated
useful lives of the assets. Maintenance and repairs are charged to expense when
incurred and improvements are capitalized. Upon the sale or retirement of
assets, the cost and accumulated depreciation are removed from the balance sheet
and any gain or loss is recognized currently.
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Equipment, computer hardware and software........ $ 3,704 $ 3,486
Furniture........................................ 2,341 1,919
Building and improvements........................ 1,138 1,083
------- -------
Total.................................. 7,183 6,488
Accumulated depreciation and amortization........ (3,142) (2,950)
------- -------
Property and equipment, net............ $ 4,041 $ 3,538
======= =======
</TABLE>
At December 31, 1998 the net book value of property and equipment related
to capital lease obligations was $867,000.
I-18
<PAGE> 80
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) Other Assets
Other assets consist primarily of notes receivable entered into in
connection with the sale of certain physician practices during 1998. The
components of other assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Promissory note including accrued interest of $86, payable
in monthly installments of $28 including interest at 7.5%
with a final payment due in April 2003.................... $3,555
Promissory note, payable in monthly installments of $3,
including interest at 10.73%, maturing in December 2001... 90
Promissory note including accrued interest of $12, payable
in monthly installments of $12 including interest at 9.0%,
maturing in April 2001.................................... 308
------
Total notes receivable............................ 3,953
Security deposits........................................... 90
------
Total other assets................................ 4,043
Less-Current portion........................................ (392)
------
Total non-current other assets.................... $3,651
======
</TABLE>
Annual maturities of notes receivable as of December 31, 1998 are as
follows (in thousands):
<TABLE>
<S> <C>
1999................................................ 392
2000................................................ 244
2001................................................ 138
2002................................................ 103
2003................................................ 3,076
------
Total..................................... $3,953
======
</TABLE>
The borrower under the promissory note which matures in April 2003, of
which approximately $3.6 million is outstanding including accrued interest, is
presently in default under the terms of the promissory note and the terms of the
asset purchase agreement entered into in April 1998, pursuant to which the note
was issued. See Note 8(d) for further disclosure of ongoing litigation regarding
the promissory note.
(5) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Revolving credit facility, maturing in April 2001, at
Libor plus an applicable margin (6.9% at December 31,
1998), secured by substantially all assets of the
Company................................................ $56,600 $29,000
Capital lease obligations, payable in aggregate monthly
installments of $45 as of December 31, 1998, including
interest ranging from 4% to 10%, maturing at various
dates through 2001, secured by property and
equipment.............................................. 843 1,279
------- -------
Total debt..................................... 57,443 30,279
Less -- Current portion.................................. (449) (446)
------- -------
Total long-term debt........................... $56,994 $29,833
======= =======
</TABLE>
I-19
<PAGE> 81
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt as of December 31, 1998 are as follows
(in thousands):
<TABLE>
<S> <C>
1999............................................... $ 449
2000............................................... 388
2001............................................... 56,606
-------
Total.................................... $57,443
=======
</TABLE>
On March 12, 1997, the Company established a new $35 million revolving
credit facility, which was used to pay the outstanding balance under the
previous credit facility. On December 17, 1997 the Company amended its existing
revolving credit facility which increased the amount available from $35 million
to $50 million. On April 30, 1998 the Company further amended its revolving
credit facility which increased the amount available from $50 million to $75
million. This amendment included the syndication of the credit facility with a
group of banks led by NationsBank, N.A. There are no principal payments due
under the new credit facility until the maturity date of April 30, 2001. The new
revolving credit facility contains various restrictive covenants that include,
among other requirements, the maintenance of certain financial ratios, various
restrictions regarding acquisitions, sales of assets, liens and dividends, and
limitations regarding investments, additional indebtedness and guarantees. The
Company was in compliance with the loan covenants in the new credit facility as
of December 31, 1998. The additional amount that could be borrowed under the
credit facility is potentially restricted by a leverage ratio defined in the
credit agreement. Based on the value of this leverage ratio at December 31,
1998, the Company had the ability to borrow an additional amount of
approximately $8.0 million as of December 31, 1998.
The Company entered into an interest rate swap agreement in August 1998
with NationsBank N.A., the notional amount of which is $40 million at December
31, 1998. The Company entered into the agreement to fix the interest expense
paid on a portion of the amount outstanding under its credit facility with
NationsBank N.A. Under the terms of the agreement, which matures in August 2001,
the Company's borrowing rate is fixed at 5.54% plus the applicable margin due
under the terms of the revolving credit facility. Hedge accounting treatment is
applied to the interest rate swap agreement with interest differentials
currently payable or receivable under the agreement recognized each period as an
adjustment to interest expense. The net effect of this agreement on the
Company's interest expense in 1998 was nominal.
(6) 401(K) PROFIT SHARING PLANS
The Company maintains 401(k) Profit Sharing Plans (the "Plans"), which are
defined contribution plans covering substantially all employees who meet certain
age and service requirements. For the three years ended December 31, 1998, the
Company made discretionary profit sharing contributions to the Plans equal to a
percentage of the eligible employees' salaries, and made other employer
contributions to the Plans. There was no expense related to the Plans for the
years ended December 31, 1998, 1997 and 1996 as contributions were covered in
each year by the Plans' forfeitures.
(7) INCOME TAXES
Current income tax expense represents the income tax payable for the
period. Deferred income tax expense (benefit) represents the change in the
balance of deferred income taxes during the period. In accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company recognizes deferred income taxes for the tax consequences in future
years of differences between the tax basis and the financial reporting basis of
assets and liabilities based on the enacted tax rates expected to be applicable
to the future periods in which such tax consequences will occur.
I-20
<PAGE> 82
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Current................................. $3,653 $3,157 $ 1,343
Deferred................................ 1,417 (263) (1,154)
------ ------ -------
Total......................... $5,070 $2,894 $ 189
====== ====== =======
Federal................................. $4,245 $2,454 $ (27)
State................................... 825 440 216
------ ------ -------
Total......................... $5,070 $2,894 $ 189
====== ====== =======
</TABLE>
A reconciliation of the tax provision at the statutory federal rate of 34%
to the actual income tax expense (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Tax provision (benefit) at the federal statutory
rate.......................................... $3,891 $2,741 $(3,721)
State income taxes.............................. 453 319 (433)
Increase (decrease) in valuation allowance for
deferred tax assets........................... -- (828) 2,122
Non-deductible portion of write-down of
office-based net assets....................... -- -- 1,279
Non-deductible goodwill amortization............ 830 621 516
Capital gain to be offset against unrecognized
capital loss carryover........................ (190) -- --
Income of affiliates that cannot be offset
against net operating losses of the Company... -- -- 296
Other, net...................................... 86 41 130
------ ------ -------
Total................................. $5,070 $2,894 $ 189
====== ====== =======
</TABLE>
Deferred income taxes were related to the following timing differences at
December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
<S> <C> <C>
Goodwill and other intangible assets...................... $ 924 $2,378
Accrual basis income of cash basis affiliates............. (487) (327)
Self-insurance accruals................................... 1,290 1,420
Conversion to accrual basis by cash basis taxpayers....... (374) (388)
Bad debt reserve.......................................... -- (300)
Property and equipment.................................... (378) --
Original issue discount interest.......................... 321 --
Other, net................................................ (2) (72)
------- ------
Total........................................... 1,294 2,711
Valuation allowance....................................... (1,294) (1,294)
------- ------
Net deferred income taxes....................... $ 0 $1,417
======= ======
</TABLE>
I-21
<PAGE> 83
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company records a valuation allowance to reflect net deferred income
taxes at their estimated realizable value.
(8) COMMITMENTS AND CONTINGENCIES
(a) Major Customers
A significant portion of the Company's revenue is derived from delivering
or managing hospital-based physician services at multiple hospitals which are
under common ownership. Of the Company's total net revenue in 1998,
approximately $22.9 million, or 20.3%, was derived from anesthesia, obstetrics
and neonatology services delivered at three hospitals owned and operated by the
South Broward Hospital District. In addition, approximately $28.9 million, or
25.6% of the Company's total net revenue in 1998, was derived from anesthesia,
neonatology, pediatric and emergency services delivered at 13 hospitals and two
ambulatory surgical facilities owned and operated by Columbia/HCA Healthcare
Corp. In addition, approximately $9.3 million, or 8.3% of the Company's total
net revenue in 1998, was derived from anesthesia, neonatology, pediatric,
emergency and management services delivered at three hospitals owned and
operated by Tenet Healthcare Corporation.
A significant portion of the Company's revenue is derived from delivering
medical services to patients who are covered under various Medicare and Medicaid
health care programs. Approximately 10.4% of the Company's total net revenue in
1998 was derived from the assignment of Medicare and Medicaid benefits to the
Company by patients of the Company's affiliated physicians. In addition,
approximately 4.4% of the Company's total net revenue in 1998 was derived from
capitation payments from health maintenance organizations for patients who had
assigned their Medicare or Medicaid benefits to the health maintenance
organizations. In each year the amounts received from managed care organization
under the Company's capitation arrangements exceeded the cost of services
provided to patients under those arrangements.
In addition, the Company derived 8.2%, 14.3% and 20.8% of its total net
revenue in 1998, 1997 and 1996, respectively, from a single third-party payor.
No other third-party payor or other customer accounted for 10% or more of the
Company's net revenue in 1998.
(b) Employment Agreements
The Company and its affiliates have employment contracts with certain
executives, physicians and other clinical and administrative employees. Future
annual minimum payments under such employment agreements as of December 31, 1998
are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................... $16,117
2000............................................... 13,722
2001............................................... 11,283
2002............................................... 9,898
2003............................................... 7,533
Thereafter......................................... 4,324
-------
Total.................................... $62,877
=======
</TABLE>
(c) Self-insurance
Due to the nature of its business, the Company becomes involved as a
defendant in medical malpractice lawsuits, some of which are currently ongoing,
and is subject to the attendant risk of substantial damage awards. The Company
maintains professional and general liability insurance on a claims-made basis.
The Company has a primary malpractice insurance policy which covers losses
incurred by the Company up to a limit of $1.0 million per individual claim. In
addition, the Company has a secondary malpractice insurance
I-22
<PAGE> 84
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
policy which covers losses in excess of the primary policy limits, up to a limit
of $5.0 million per individual claim and a limit of $5.0 million per calendar
year for all claims combined. Under the primary policy, the Company is required
to pay a self-insured retention amount equal to the first $250,000 and $150,000
in 1998 and 1997, respectively, of losses for each individual claim up to a
maximum aggregate self-insured retention amount of $1,000,000 and $900,000 for
all claims in 1998 and 1997, respectively. Defense costs in excess of these
self-insured retention amounts are paid by the Company's insurer. There can be
no assurance, that an existing or future claim or claims will not exceed the
limits of available insurance coverage, that any insurer will remain solvent and
able to meet its obligations to provide coverage for any such claim or claims or
that such coverage will continue to be available with sufficient limits and at a
reasonable cost to adequately and economically insure the Company's operations
in the future. A judgment against the Company in excess of such coverage could
have a material adverse effect on the Company.
The liability for self-insurance accruals in the accompanying balance
sheets includes estimates of the ultimate costs related to both reported claims
and claims incurred but not reported. The estimate of claims incurred but not
reported was $3,165,000, $2,522,000 and $2,095,000 at December 31, 1998, 1997
and 1996, respectively, which represents an estimate of the aggregate cost to be
incurred by the Company on unreported claims. An analysis of the self-insurance
accrual is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Balance, beginning of year.............. $ 3,973 $3,170 $1,615
Provision for self-insurance............ 1,159 378 1,252
Self-insurance accruals related to
acquired physician practices.......... 892 626 439
Payments made for claims................ (1,705) (201) (136)
------- ------ ------
Balance, end of year.................... $ 4,319 $3,973 $3,170
======= ====== ======
</TABLE>
Payments made for claims increased in 1998 as a result of an increase in
reported claims during 1997, many of which are incurring ongoing legal defense
costs or were settled during 1998. The increase in reported claims was
anticipated due to the growth in the Company's overall business and addition of
medical specialties that historically have demonstrated a higher frequency of
malpractice claims. Historically, the malpractice claims asserted against the
Company have not exceeded the limits of its professional liability insurance and
the Company's cost of self-insurance has been limited to the maximum annual
aggregate retention amount.
(d) Litigation
In October 1996, the Company and certain of its directors, officers and
legal advisors were named as defendants in a lawsuit filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County, Florida by
certain former physician stockholders of the Company's Predecessor. The claim
alleges that the defendants engaged in a conspiracy of fraud and deception for
personal gain in connection with inducing the plaintiffs to sell their stock in
the Predecessor to the Company, as well as legal malpractice and violations of
Florida securities laws. The claim seeks damages of at least $10 million and the
imposition of a constructive trust and disgorgement of stock and options held by
certain members of the Company's management. The Company believes the lawsuit is
without merit and continues to vigorously defend against it and also believes
the lawsuit's ultimate resolution and ongoing professional fees incurred as
defense costs will not have a material adverse impact on the financial position,
operations and cash flows of the Company.
In December 1998, the buyer of two medical practices previously owned by
the Company, filed suit against the Company in the Circuit Court of the
Seventeenth Judicial Circuit in and for Broward County, Florida. The complaint
seeks to recover money damages and rescind the sale of the medical practices,
based
I-23
<PAGE> 85
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
upon alleged misrepresentations and concealment by the Company with respect to
its relationship with a third party payor in regards to these practices. The
practices were sold by the Company to the buyer in April 1998 in exchange for
the execution of a promissory note in the amount of $3,550,000 which is
presently in default. The Company believes the lawsuit is without merit and
intends to vigorously defend against it while vigorously pursuing a counter
claim for recovery on its unsecured purchase money note. The Company also
believes the lawsuit's ultimate resolution and ongoing professional fees
incurred as defense costs will not have a material adverse impact on the
financial position, operations and cash flows of the Company. See Note (2) for
further disclosure regarding the sale of the primary care practices referred to
in this paragraph.
(e) Lease Commitments
The Company leases office space and furniture and equipment for its
physician practice locations and administrative office under various
non-cancellable operating leases. Rent expense under operating leases was
$2,230,733, $2,475,000 and $2,399,000 in 1998, 1997 and 1996, respectively.
Future annual minimum payments under non-cancellable operating leases as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................... $ 2,231
2000............................................... 2,044
2001............................................... 1,857
2002............................................... 1,593
2003............................................... 1,264
Thereafter......................................... 2,282
-------
Total.................................... $11,271
=======
</TABLE>
(f) Government Regulation
The healthcare industry in general, and the services that the Company
provides are subject to extensive federal and state laws and regulations.
Additionally, a significant portion of the Company's net revenue is from payment
by government-sponsored health care programs, principally Medicare and Medicaid,
and is subject to audit and adjustments by applicable regulatory agencies.
Failure to comply with any of these laws or regulations, the results of
regulatory audits and adjustments, or changes in the amounts payable for the
Company's services under these programs could have a material adverse effect on
the Company's financial position and results of operations.
Federal and state laws regulate the healthcare industry, the relationship
between practice management companies such as the Company and physicians, and
the relationship among physicians and other providers of healthcare services.
Several laws, including fee-splitting, anti-kickback laws and prohibition of the
corporate practice of medicine, have civil and criminal penalties and have been
subject to limited judicial and regulatory interpretation. They are enforced by
regulatory agencies vested with broad discretion in interpreting them. The
Company's agreements and proposed activities have not been examined by federal
or state authorities under these laws and regulations. Although the Company
believes that its operations are conducted so as to comply with all of the
applicable laws, there can be no assurance such operations will not be
challenged as in violation of one or more of such laws. In addition, these laws
and their interpretation vary from state to state. The regulatory framework at
certain jurisdictions may limit the Company's expansion into or ability to
continue operations within such jurisdictions, if the Company is unable to
modify its operational structure to conform to such regulatory framework. Any
limitation on the Company's ability to expand could have an adverse effect on
the Company.
There have been numerous initiatives at the federal and state levels for
comprehensive reforms affecting the availability of, and payment for,
healthcare. The Company believes that such initiatives will continue
I-24
<PAGE> 86
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
during the foreseeable future. Certain reforms previously proposed could, if
adopted, have a material effect on the Company.
(9) STOCKHOLDERS' EQUITY
At January 1, 1995, the issued and outstanding stock of the Company
consisted of 409,900 shares of the Company's Class A voting common stock held by
management of the Company and 350,000 and 78,572 shares of Class A and Class B
Convertible Preferred Stock, respectively. Each share of Class A and Class B
Convertible Preferred Stock was convertible, at the option of the holder, into
one-fourth of a share of Class A voting and Class B non-voting common stock,
respectively, and three-fourths of a share of Redeemable Preferred Stock. The
Class A and Class B Convertible Preferred Stock accrued dividends on a
cumulative basis at 7.5% per annum, and had a liquidation value of $50 per
share.
In June 1995, the Company issued a convertible promissory note for $5.0
million, which was convertible into 181,671 shares of common stock. The
noteholder also received a warrant to purchase up to an additional 45,410 shares
of the Company's common stock at an exercise price of $0.58 per share which
becomes exercisable in three installments if, through the substantial efforts of
the noteholder, the Company consummates transactions with physician practices
(generally either by acquiring such practices or entering into agreements to
manage such practices) which collectively result in certain increases in the
Company's earnings during certain measurement periods. The first and second
installments, which consisted of 15,146 shares each, expired unexercised in
December 1996 and 1997, respectively. The remaining installment of 15,132 shares
expired unexercised in June 1998.
The Company completed an initial public offering of its common stock on
November 3, 1995, in which it issued 3,825,000 shares of common stock at a price
of $13.00 per share. In connection with the public offering (i) the Company
increased the amount of authorized preferred stock to 5,000,000 shares and
increased the amount of authorized common stock to 31,000,000 shares, (ii) all
of the outstanding Class A and Class B Convertible Preferred Stock was converted
into 1,321,377 shares of Class A common stock, 296,638 shares of Class B common
stock, and 321,429 shares of Redeemable Preferred Stock, (iii) all of the
Redeemable Preferred Stock was redeemed by the Company for an aggregate amount
of $16.1 million, (iv) the Class A voting common stock was redesignated as
"common stock" and the Class B non-voting common stock was redesignated as
"Class A common stock," and (v) a 15.10-to-one stock split was effected as a
stock dividend. The 15.10-to-one stock split has been retroactively reflected in
the accompanying consolidated financial statements.
The initial public offering generated net proceeds to the Company of $44.8
million. Of the total proceeds, $16.1 million was used to redeem the Company's
redeemable preferred stock, $26.1 million was used to repay long-term debt, $1.5
million was used to pay accrued dividends on convertible preferred stock, and
$1.1 million was used to pay certain deferred payments in connection with the
acquisition of a physician practice in June 1995.
In March 1996, the Company issued approximately 658,000 shares of its
common stock as partial consideration for an acquisition of a hospital-based
physician practice, as discussed in Note 2.
In May 1997, the Company reduced the amount of authorized common stock from
31,000,000 shares to 21,000,000 shares. In November 1997, the Company issued
approximately 14,000 shares of its common stock as partial consideration for an
acquisition of an office-based physician practice.
During the period from January 1998 through June 1998 the Company issued
approximately 1,428,000 shares of its common stock as partial consideration in
the acquisition of seven physician practices. Pursuant to a stock repurchase
program approved by the Company's Board of Directors, the Company repurchased
approximately 425,000 shares of its common stock from July 1998 through December
1998 for approximately $3.7 million. The shares repurchased have been retired
and cancelled. Employees of the Company exercised
I-25
<PAGE> 87
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options to acquire approximately 23,000 and 77,000 shares of the Company's
common stock during 1998 and 1997, respectively.
(10) STOCK OPTIONS
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") in 1996. As
permitted under SFAS No. 123 the Company has elected to continue using
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for employee stock options. Each employee stock option
has an exercise price equal to the market price on the date of grant and,
accordingly, no compensation expense has been recorded for any stock option
grants to employees.
In 1995 the Company adopted the 1995 Stock Option Plan, under which 750,000
shares of common stock were reserved for issuance. An amendment to the plan in
1997 and second amendment in 1998 increased the shares of common stock reserved
for issuance to 1,350,000 which was subsequently amended in 1998 to increase the
shares of common stock reserved for issuance to 1,750,000. Options granted under
the 1995 Stock Option Plan become exercisable either over time, or upon the
attainment of defined operating goals. All stock options granted expire ten
years after the date of grant. Stock option activity has been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year.... 937,084 $7.91 553,911 $5.73 321,461 $8.82
Granted during year........... 522,675 13.18 471,500 9.27 608,071 7.17
Terminated during year........ -- -- -- -- (335,071) 10.51
Exercised..................... (23,475) 3.92 (77,190) 0.58 -- --
Forfeited during year......... (34,105) 8.97 (11,137) 6.65 (40,550) 12.32
--------- ------- --------
Balance, end of year........ 1,402,179 $9.92 937,084 $7.91 553,911 $5.73
========= ======= ========
Exercisable at end of year.... 397,223 $8.13 151,716 $6.25 131,283 $3.38
</TABLE>
The weighted average fair value per share as of the grant date was $6.78
for stock options granted in 1998, $6.11 for stock options granted in 1997,
$4.15 for stock options granted in 1996 and $6.82 for stock options granted in
1995. The determination of the fair value of all stock options granted in 1998,
1997, 1996 and 1995 was based on (i) risk-free interest rates of 6.2% to 6.5%,
depending on the expected life of each option, (ii) expected option lives of 3
to 6 years, depending on the vesting provisions of each option, (iii) expected
volatility in the market price of the Company's common stock from 50% to 78%,
and (iv) no expected dividends on the underlying common stock. Stock options
outstanding at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
TOTAL OUTSTANDING EXERCISABLE
-------------------------------- ------------------
WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER -------------------- NUMBER AVERAGE
EXERCISE OF EXERCISE REMAINING OF EXERCISE
PRICES SHARES PRICE LIFE SHARES PRICE
- - ---------------- --------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
$.58 22,508 $ .58 6.2 years 22,508 $ .58
$5.75 to $8.13.. 326,746 6.48 7.1 years 245,382 6.64
$8.75 to $9.50.. 520,250 9.22 8.3 years 39,334 8.70
$10.00 to
$14.25........ 532,675 13.12 9.3 years 89,999 13.85
--------- -------
Total 1,402,179 $ 9.92 8.3 years 397,223 $ 8.13
========= =======
</TABLE>
I-26
<PAGE> 88
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the pro forma consolidated results of
operations of the Company as though the fair value based accounting method in
SFAS No. 123 had been used in accounting for stock options.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
AS REPORTED RESULTS OF OPERATIONS:
Net income................................................. $6,373 $5,167
Net income per share -- basic.............................. $ 0.80 $ 0.77
Net income per share -- diluted............................ $ 0.78 $ 0.73
PRO FORMA RESULTS OF OPERATIONS:
Net income................................................. $4,113 $3,495
Net income per share -- basic.............................. $ 0.52 $ 0.52
Net income per share -- diluted............................ $ 0.50 $ 0.50
</TABLE>
(11) SUBSEQUENT EVENT
In January 1999 the Company completed the acquisition of a physician
practice for approximately $1.9 million which was paid in cash. From January
1999 through March 16, 1999 the Company repurchased approximately 1,275,000
shares of its common stock for approximately $10.6 million from certain
physicians who received the Company's common stock as partial consideration for
the acquisition of their practices by the Company from January 1998 through
March 1998, see Note (2). Concurrent with such repurchases, the Company made
payments of approximately $5.6 million in connection with the stock price
guarantees associated with the stock issued and repurchased in those
acquisitions.
On March 25, 1999 the Company announced the signing of a definitive merger
agreement between the Company and an investor group led by Vestar Capital
Partners and Sheridan Healthcare, Inc. senior management. Under the terms of the
agreement, the investor group will offer Sheridan Healthcare, Inc. shareholders
$9.25 per share in cash for all outstanding common shares in a tender offer.
Including debt and other obligations of the Company, and costs expected to be
incurred in connection with the acquisition, the total value of the transaction
is approximately $155 million. The transaction was unanimously recommended by
the Company's Board of Directors and is subject to a variety of conditions,
including receipt of at least a majority of the voting stock in the tender
offer, shareholder approval, financing and regulatory approvals.
I-27
<PAGE> 89
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
1. Directors and Executive Officers of the Company. The following table
sets forth the name, the business address, position with the Company, present
principal occupation or employment and five-year employment history of the
directors and executive officers of the Company. Each individual listed below is
a citizen of the United States.
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------------------------------------
<S> <C>
Mitchell Eisenberg, M.D................ Dr. Eisenberg joined the Company in 1982, has been a
c/o Sheridan Healthcare, Inc. director of the Company since 1985, has been President
4651 Sheridan Street, since 1989, and has been Chairman of the Board and Chief
Suite 200 Executive Officer since 1994. Prior to joining the
Hollywood, FL 33021 Company, Dr. Eisenberg was in private practice.
Lewis D. Gold, M.D..................... Dr. Gold joined the Company in 1985 as an anesthesiologist
c/o Sheridan Healthcare, Inc. and has been a director of the Company since 1988. He has
4651 Sheridan Street, served as Executive Vice President Business Development
Suite 200 since 1994. Dr. Gold was also Chief of the Department of
Hollywood, FL 33021 Anesthesia of Parkway Regional Medical Center from 1990 to
1994.
Neil A. Natkow, D.O.................... Dr. Natkow was appointed to the Company's Board of
c/o Sheridan Healthcare, Inc. Directors in July 1996. Dr. Natkow served as Senior Vice
4651 Sheridan Street, President -- Health Care for Precision Response
Suite 200 Corporation, a publicly traded company, from February 1997
Hollywood, FL 33021 until October 1997, and is currently a member of Precision
Response Corporation's Board of Directors. Upon leaving
Precision Response Corporation, Dr. Natkow became
President of NAN II, Inc., a Florida Corporation which is
the general partner of PhyTrust, Ltd., a Florida
management services organization. From December 1993 until
October 1995, Dr. Natkow served as an executive officer of
PCA Health Plans of Florida, a health maintenance
organization, most recently as its Chief Executive
Officer. From July 1992 to December 1993, Dr. Natkow was
the President and Chief Executive Officer of Family Health
Plan, a health maintenance organization, and from June
1987 to July 1992, Dr. Natkow was the Vice President for
Professional Affairs at Southeastern University for Health
Sciences.
Jamie E. Hopping....................... Mrs. Hopping has been a director of the Company since
c/o Sheridan Healthcare, Inc. February 1998. Mrs. Hopping is currently President and
4651 Sheridan Street, Chief Executive Officer of Benchark Oncology, Inc. Prior
Suite 200 to that she served as an independent health care
Hollywood, FL 33021 consultant from September 1997 to December 1998. From
January 1996 to August 1997, Mrs. Hopping served as a
Group President of Columbia/HCA Healthcare Corporation and
from February 1994 to January 1996 served as its Division
President. Prior to that, Mrs. Hopping served as the Chief
Executive Officer of Deering Hospital and Grant Center, an
acute care hospital and psychiatric facility, from
September 1990 to January 1993.
</TABLE>
II-1
<PAGE> 90
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------------------------------------
<S> <C>
Henry E. Golembesky, M.D............... Dr. Golembesky has been a director of the Company since
c/o Sheridan Healthcare, Inc. November 1995. Dr. Golembesky is currently a health care
4651 Sheridan Street, consultant to Cejka & Company. Prior to that, Dr.
Suite 200 Golembesky served as a health care consultant to APM, Inc.
Hollywood, FL 33021 from January 1993 to October 1998. From 1990 to 1992, Dr.
Golembesky served as President and Chief Executive Officer
of UniMed America, a physician services division of
Unihealth.
EXECUTIVE OFFICERS AND ROBERT J. COWARD
Mitchell Eisenberg, M.D................ Chairman of the Board and Chief Executive Officer
Lewis D. Gold.......................... Executive Vice President
Business Development
Michael F. Schundler................... Mr. Schundler joined the Company in July 1996 as Chief
c/o Sheridan Healthcare, Inc. Operating Officer and currently serves as both Chief
4651 Sheridan Street, Operating Officer and Chief Financial Officer. Previously,
Suite 200 Mr. Schundler served as Vice President -- Operations at
Hollywood, FL 33021 American Health Network from 1994 to 1996 and as Chief
Financial Officer of AdminiStar, Inc. from 1991 to 1994.
Prior to that, Mr. Schundler was Senior Vice
President -- Finance of Merrill Lynch Life Insurance Co.
and Family Life Insurance Co.
Gilbert L. Drozdow, M.D., M.B.A........ Dr. Drozdow joined the Company in 1987 as an
c/o Sheridan Healthcare, Inc. anesthesiologist and was a director of the Company from
4651 Sheridan Street, 1990 to 1994. He served the Company as Vice President
Suite 200 Medical Affairs from 1994 to February 1996 and has served
Hollywood, FL 33021 as Vice President Hospital-Based Services since February
1996. He was also Chairman of the Department of Anesthesia
at Westside Regional Medical Center in 1994.
Jay A. Martus, Esq..................... Mr. Martus joined the Company in 1994 as Vice President,
c/o Sheridan Healthcare, Inc. Secretary and General Counsel. Prior to joining the
4651 Sheridan Street, Company, he was a partner with the law firm of Levey &
Suite 200 Martus, P.A. Mr. Martus represented the Company as outside
Hollywood, FL 33021 general counsel from 1989 to 1994.
Barry D. Chandler, M.D................. Dr. Chandler joined the Company in 1996 as a Vice
c/o Sheridan Healthcare, Inc. President of Neonatology Operations, when the Company
4651 Sheridan Street, acquired a neonatology and pediatric practice of which he
Suite 200 was a shareholder. Dr. Chandler has been Director of
Hollywood, FL 33021 Neonatology at Plantation General Hospital from 1983 to
the present.
Richard Auerbach, M.D.................. Dr. Auerbach joined the Company in 1996 as a Vice
c/o Sheridan Healthcare, Inc. President of Neonatology Operations, when the Company
4651 Sheridan Street, acquired a neonatology and pediatric practice of which he
Suite 200 was a shareholder. Dr. Auerbach has been Director of
Hollywood, FL 33021 Neonatology at Joe DiMaggio Children's Hospital since
1986.
</TABLE>
II-2
<PAGE> 91
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------------------------------------
<S> <C>
Robert J. Coward....................... Mr. Coward joined the Company in March of 1994 as
c/o Sheridan Healthcare, Inc. Controller and served in such capacity through June of
4651 Sheridan Street, 1997. From July 1997 to the present, he serves the Company
Suite 200 as Vice President of Finance.
Hollywood, FL 33021
</TABLE>
II-3
<PAGE> 92
SCHEDULE III
DIRECTORS AND EXECUTIVE
OFFICERS OF HOLDINGS
1. Directors and Executive Officers of Holdings. The following table sets
forth the name, the business address, position with Holdings, present principal
occupation or employment and five-year employment history of the directors and
executive officers of Holdings. Each individual listed below is a citizen of the
United States, except David M. Hooper, who is a citizen of the Republic of
Ireland.
DIRECTORS
Not Applicable
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- --------------------------------------------------------
<S> <C>
James L. Elrod, Jr. ...................... President of Holdings. Vice President of Vestar
c/o Vestar Associates Corporation III Associates Corporation III ("VAC III"). Mr. Elrod joined
245 Park Avenue an affiliate of VAC III in 1998. From 1994 through 1997,
41st Floor he served as the Chief Financial Officer and Chief
New York, New York 10167 Operating Officer of Physicians Health Services. From
1980 to 1994, he served as Managing Director of Dillon,
Read & Co. Mr. Elrod is a director of Pinnacle
Automation, Inc. and Alvey Systems, Inc., both companies
in which an affiliate of VAC III has a significant
equity interest, and D.D.S. Partners, a dental practice
management company.
Robert L. Rosner.......................... Vice President, Treasurer and Assistant Secretary of
c/o Vestar Associates Corporation III Holdings. Vice President of VAC III and was a founding
245 Park Avenue partner of an affiliate of VAC III at its inception in
41st Floor 1988. Mr. Rosner is Chairman of Russell-Stanley
New York, New York 10167 Holdings, Inc. and a director of Remington Products
Company, L.L.C., both companies in which an affiliate of
VAC III has a significant equity interest.
David M. Hooper........................... Vice President, Secretary and Assistant Treasurer of
c/o Vestar Associates Corporation III Holdings. Vice President of Vestar Capital, which he
245 Park Avenue joined in 1994. Mr. Hooper is a director of Advanced
41st Floor Organics Holdings, Inc., a company in which an affiliate
New York, New York 10167 of VAC III has a significant equity interest.
</TABLE>
III-1
<PAGE> 93
SCHEDULE III
DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT
1. Directors and Executive Officers of Parent. The following table sets
forth the name, the business address, position with Parent, present principal
occupation or employment and five-year employment history of the directors and
executive officers of Parent. Each individual listed below is a citizen of the
United States, except David M. Hooper, who is a citizen of the Republic of
Ireland.
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- --------------------------------------------------------
<S> <C>
James L. Elrod, Jr. ...................... Vice President of VAC III. Mr. Elrod joined an affiliate
c/o Vestar Associates Corporation III of VAC III in 1998. From 1994 through 1997, he served as
245 Park Avenue the Chief Financial Officer and Chief Operating Officer
41st Floor of Physicians Health Services. From 1980 to 1994, he
New York, New York 10167 served as Managing Director of Dillon, Read & Co. Mr.
Elrod is a director of Pinnacle Automation, Inc. and
Alvey Systems, Inc., both companies in which an
affiliate of VAC III has a significant equity interest,
and D.D.S. Partners, a dental practice management
company.
Robert L. Rosner.......................... Vice President of VAC III and was a founding partner of
c/o Vestar Associates Corporation III an affiliate of VAC III at its inception in 1988. Mr.
245 Park Avenue Rosner is Chairman of Russell-Stanley Holdings, Inc. and
41st Floor a director of Remington Products Company, L.L.C., both
New York, New York 10167 companies in which an affiliate of VAC III has a
significant equity interest.
David M. Hooper........................... Vice President of Vestar Capital, which he joined in
c/o Vestar Associates Corporation III 1994. Mr. Hooper is a director of Advanced Organics
245 Park Avenue Holdings, Inc., a company in which an affiliate of VAC
41st Floor III has a significant equity interest.
New York, New York 10167
EXECUTIVE OFFICERS
James L. Elrod, Jr. ...................... President
Robert L. Rosner.......................... Vice President, Treasurer and Assistant Secretary
David M. Hooper........................... Vice President, Secretary and Assistant Treasurer
</TABLE>
III-2
<PAGE> 94
SCHEDULE III
DIRECTORS AND EXECUTIVE
OFFICERS OF PURCHASER
1. Directors and Executive Officers of the Purchaser. The following table
sets forth the name, the business address, position with the Purchaser, present
principal occupation or employment and five-year employment history of the
directors and executive officers of the Purchaser. Each individual listed below
is a citizen of the United States, except David M. Hooper, who is a citizen of
the Republic of Ireland.
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- --------------------------------------------------------
<S> <C>
James L. Elrod, Jr. ...................... Vice President of VAC III. Mr. Elrod joined an affiliate
c/o Vestar Associates Corporation III of VAC III in 1998. From 1994 through 1997, he served as
245 Park Avenue the Chief Financial Officer and Chief Operating Officer
41st Floor of Physicians Health Services. From 1980 to 1994, he
New York, New York 10167 served as Managing Director of Dillon, Read & Co. Mr.
Elrod is a director of Pinnacle Automation, Inc. and
Alvey Systems, Inc., both companies in which an
affiliate of VAC III has a significant equity interest,
and D.D.S. Partners, a dental practice management
company.
Robert L. Rosner.......................... Vice President of VAC III and was a founding partner of
c/o Vestar Associates Corporation III an affiliate of VAC III at its inception in 1988. Mr.
245 Park Avenue Rosner is Chairman of Russell-Stanley Holdings, Inc. and
41st Floor a director of Remington Products Company, L.L.C., both
New York, New York 10167 companies in which an affiliate of VAC III has a
significant equity interest.
David M. Hooper........................... Vice President of Vestar Capital, which he joined in
c/o Vestar Associates Corporation III 1994. Mr. Hooper is a director of Advanced Organics
245 Park Avenue Holdings, Inc., a company in which an affiliate of VAC
41st Floor III has a significant equity interest.
New York, New York 10167
EXECUTIVE OFFICERS
James L. Elrod, Jr. ...................... President
Robert L. Rosner.......................... Vice President, Treasurer and Assistant Secretary
David M. Hooper........................... Vice President, Secretary and Assistant Treasurer
</TABLE>
III-3
<PAGE> 95
DIRECTORS AND EXECUTIVE
OFFICERS OF VAC III
1. Directors and Executive Officers of VAC III. The following table sets
forth the name, the business address, position with VAC III, present principal
occupation or employment and five-year employment history of the directors and
executive officers of VAC III. Each individual listed below is a citizen of the
United States, except Prakash A. Melwani, who is a British National Overseas
Citizen.
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- - ------------------------------------------ --------------------------------------------------------
<S> <C>
Daniel S. O'Connell....................... President and Chief Executive officer of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
EXECUTIVE OFFICERS
Daniel S. O'Connell....................... President and Chief Executive Officer of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
Prakash A. Melwani........................ Vice President and Secretary of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
James P. Kelley........................... Vice President of VAC III.
c/o Vestar Associates Corporation III
1225 17th Street
Suite 1660
Denver, Colorado 80202
Norman W. Alpert.......................... Vice President of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
Arthur J. Nagle........................... Vice President of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
John R. Woodard........................... Vice President of VAC III. Mr. Woodard joined an
c/o Vestar Associates Corporation III affiliate of VAC III in February 1998. From March 1996
1225 17th Street to February 1998, he served as a Managing Director of
Suite 1660 The Blackstone Group. From 1990 to March 1996, Mr.
Denver, Colorado 80202 Woodard was a Vice President of Vestar Capital.
</TABLE>
III-4
<PAGE> 96
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- - ------------------------------------------ --------------------------------------------------------
<S> <C>
Robert L. Rosner.......................... Vice President of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
Sander M. Levy............................ Vice President of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
Nicholas A. Dovidio....................... Vice President of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
Brian P. Schwarz.......................... Chief Financial Officer of VAC III.
c/o Vestar Associates Corporation III
245 Park Avenue
41st Floor
New York, New York 10167
James L. Elrod, Jr........................ Vice President of VAC III. Mr. Elrod joined an affiliate
c/o Vestar Associates Corporation III of VAC III in 1998. From 1994 through 1997, he served as
245 Park Avenue the Chief Financial Officer and Chief Operating Officer
41st Floor of Physicians Health Services.
New York, New York 10167
</TABLE>
III-5
<PAGE> 97
SCHEDULE IV
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
IV-1
<PAGE> 98
SCHEDULE IV
The following is the text of Section 262 of the Delaware General
Corporation Law.
262 APPRAISAL RIGHTS -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger of consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
IV-2
<PAGE> 99
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of (1)such
stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of (1)such
stockholder's shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subscription and has not
voted in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall not
be more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a
IV-3
<PAGE> 100
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the
effective date of the merger or consolidation, any stockholder shall have
the right to withdraw (1)such stockholder's demand for appraisal and to
accept the terms offered upon the merger or consolidation. Within 120 days
after the effective date of the merger or consolidation, any stockholder
who has complied with the requirements of subsections (a) and (d) hereof,
upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement will be mailed to the stockholder within 10 days after
(1) such stockholder's written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration
of the period for delivery of demands for appraisal under subsection (d)
hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted (1)
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that (2) such stockholder is not entitled to appraisal rights under
this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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<PAGE> 101
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded(1) appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of (1)such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
- - ---------------
Ch. 339, L. '98, eff. 7-1-98, added matter in italic and deleted (1)"his" and
(2)"he".
IV-5
<PAGE> 102
SCHEDULE V
AGREEMENT AND PLAN OF MERGER, DATED AS OF
MARCH 24, 1999, AMONG PARENT, THE PURCHASER AND THE COMPANY
V-1
<PAGE> 103
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
VESTAR/CALVARY HOLDINGS, INC.,
VESTAR/CALVARY, INC.
AND
SHERIDAN HEALTHCARE, INC.
DATED AS OF MARCH 24, 1999
<PAGE> 104
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE OFFER
1.1 The Offer................................................... 2
1.2 Company Action.............................................. 2
ARTICLE II
THE MERGER
2.1 The Merger; Filing and Effective Time....................... 3
2.2 Closing..................................................... 4
2.3 Effects of the Merger....................................... 4
2.4 Certificate of Incorporation; By Laws....................... 4
2.5 Directors and Officers...................................... 4
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF COMPANY AND THE MERGER SUB
3.1 Effect on Capital Stock..................................... 4
3.2 Company Options............................................. 5
3.3 Dissenters' Rights.......................................... 5
3.4 Paying Agent................................................ 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE PURCHASER
4.1 Existence, Good Standing, Corporate Authority............... 6
4.2 Authorization of Agreement and Other Documents.............. 7
4.3 Non-Contravention........................................... 7
4.4 Disclosure Documents........................................ 7
4.5 Brokers..................................................... 8
4.6 Commitment Letters.......................................... 8
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.1 Organization, Standing and Qualification.................... 8
5.2 Capitalization.............................................. 8
5.3 Subsidiaries................................................ 9
5.4 Constituent Documents....................................... 9
5.5 Authorization of Agreement.................................. 9
5.6 Non-Contravention........................................... 9
5.7 Compliance with Laws........................................ 10
5.8 Commission Documents........................................ 10
5.9 Insurance................................................... 10
5.10 Litigation.................................................. 11
5.11 Taxes....................................................... 11
5.12 ERISA....................................................... 12
</TABLE>
i
<PAGE> 105
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
5.13 Environmental Matters; OSHA................................. 13
5.14 Interim Conduct of Business................................. 13
5.15 No Brokers.................................................. 14
5.16 Disclosure Documents........................................ 14
5.17 Billing and Coding.......................................... 14
5.18 Properties.................................................. 15
5.19 Material Contract Defaults; Non-Compete..................... 15
5.20 Transactions with Affiliates................................ 16
5.21 Vote Required; State Takeover Statutes...................... 16
5.22 1998 Financial Statements................................... 16
5.23 Year 2000 Compliance........................................ 16
ARTICLE VI
COVENANTS
6.1 Interim Operations.......................................... 17
6.2 Stockholders Meeting........................................ 19
6.3 Proxy Statement, Etc. ...................................... 20
6.4 Company Board Representation; Section 14(f)................. 20
6.5 Inspection of Records....................................... 21
6.6 Publicity................................................... 21
6.7 Further Action; Reasonable Best Efforts..................... 21
6.8 Employee Benefit Plans...................................... 22
6.9 Indemnification of Directors and Officers of the Company.... 22
6.10 No Solicitations............................................ 23
6.11 Disposition of Litigation................................... 24
6.12 Financing-Related Cooperation............................... 24
6.13 Stop Transfer Order......................................... 24
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the 24
Merger......................................................
7.2 Additional Condition to the Obligations of Holdings and the 25
Purchaser to Effect the Merger..............................
ARTICLE VIII
TERMINATION AND WAIVER
8.1 Termination................................................. 25
8.2 Termination Fees and Expenses............................... 26
8.3 Effect of Termination and Abandonment....................... 27
8.4 Extension; Waiver........................................... 28
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements... 28
9.2 Notices..................................................... 28
9.3 Assignment, Binding Effect.................................. 29
9.4 Entire Agreement............................................ 29
</TABLE>
ii
<PAGE> 106
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
9.5 Amendment................................................... 29
9.6 Governing Law............................................... 29
9.7 Counterparts................................................ 29
9.8 Headings.................................................... 29
9.9 Interpretation.............................................. 29
9.10 Waivers..................................................... 29
9.11 Incorporation of Exhibits................................... 30
9.12 Severability................................................ 30
9.13 Enforcement of Agreement.................................... 30
</TABLE>
<TABLE>
<S> <C>
Annex A Offer Conditions
Exhibit A Amended and Restated Certificate of Incorporation of the
Company
Exhibit B Merger Sub By-laws
</TABLE>
iii
<PAGE> 107
AGREEMENT AND PLAN OF MERGER
PLAN AND AGREEMENT OF MERGER (the "Agreement") dated as of March 24, 1999,
among VESTAR/CALVARY HOLDINGS, INC., a Delaware corporation ("Holdings"),
VESTAR/CALVARY, INC., a Delaware corporation and a wholly owned subsidiary of
Holdings (the "Purchaser"), and SHERIDAN HEALTHCARE, INC., a Delaware
corporation (the "Company") (the Purchaser and Company being sometimes
collectively referred to herein as the "Constituent Corporations").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has determined that it is
advisable and in the best interests of the Company and the stockholders of the
Company to enter into this Agreement providing for the merger (the "Merger") of
Purchaser into the Company in accordance with the General Corporation Law of the
State of Delaware ("DGCL"), upon the terms and subject to the conditions set
forth herein;
WHEREAS, the Boards of Directors of Holdings and Purchaser have each
approved the Merger in accordance with the DGCL upon the terms and subject to
the conditions set forth herein;
WHEREAS, as promptly as practicable (but in no event later than five
business days after the public announcement of the execution hereof), the
Purchaser shall commence (within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) an offer (the "Offer") to
purchase for cash all of the outstanding shares of common stock, par value $0.01
per share ("Voting Common Stock"), and Class A Common Stock, par value $0.01 per
share ("Class A Common Stock"), of the Company (collectively, the shares of
Voting Common Stock and Class A Common Stock being referred to herein as the
"Shares" or the "Company Common Stock"), of the Company at a price of $9.25 per
Share, net to the seller in cash, subject to the conditions set forth in Annex A
hereto;
WHEREAS, the Board of Directors of the Company has (i) determined that the
consideration to be paid for each Share in the Offer and in the Merger is fair
to and in the best interests of the stockholders of the Company and (ii)
resolved to recommend acceptance of the Offer and the Merger and adoption of
this Agreement by such stockholders;
WHEREAS, as a condition to their willingness to enter into this Agreement
and consummate the transactions contemplated hereby, Holdings and the Purchaser
have required each of Mitchell Eisenberg, Lewis Gold, Michael Schundler and Jay
Martus (the "Senior Stockholders") and Gilbert Drozdow and Robert Coward
(collectively with the Senior Stockholders, the "Stockholders"),
contemporaneously with the execution and delivery of this Agreement, to enter
into (i) in the case of the Senior Stockholders, an employment agreement with
the Company to be effective upon the purchase of Shares pursuant to the Offer,
(ii) in the case of the Senior Stockholders and Gilbert Drozdow, a Stockholders
Agreement with each other and Holdings and the other parties thereto (the
"Stockholders Agreement") and (iii) in the case of the Senior Stockholders and
Gilbert Drozdow, a Subscription and Tender Agreement with Holdings and, in the
case of Robert J. Coward, a Tender Agreement (the "Subscription and Tender
Agreements") to be effective upon the purchase of Shares pursuant to the Offer
pursuant to which, among other things, each of them (x) other than Robert
Coward, shall purchase shares of common stock of Holdings following the purchase
of Shares pursuant to the Offer, (y) shall be granted following the consummation
of the Merger options to purchase common stock of Holdings and (z) has agreed to
tender all of his Shares pursuant to the Offer (such employment agreements,
Stockholders Agreement, Subscription and Tender Agreements and related documents
collectively referred to herein as the "Stockholder Documents"); and
WHEREAS, the Board of Directors of the Company has approved the merger (the
"Merger") of Purchaser into the Company in accordance with the DGCL upon the
terms and subject to the conditions set forth herein.
<PAGE> 108
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE OFFER
1.1 The Offer. (a) Provided that this Agreement shall not have been
terminated in accordance with Article VIII and no event shall have occurred and
no circumstance shall exist which would result in a failure to satisfy any of
the conditions or events set forth in Annex A hereto (the "Offer Conditions"),
Purchaser shall commence the Offer as soon as practicable after the date hereof,
and in any event within five business days from the date hereof. The obligation
of Purchaser to accept for payment Shares tendered shall be subject to the
satisfaction of the Offer Conditions. Purchaser expressly reserves the right, in
its sole discretion, to waive any such condition and make any other changes in
the terms and conditions of the Offer, provided that, unless previously approved
by the Company in writing, (i) Purchaser may not amend or waive the Minimum
Condition (as defined in Annex A), (ii) no change may be made which decreases
the price per Share payable in the Offer, (iii) there shall be no change to the
form of consideration payable in the Offer (other than by adding consideration),
(iv) there shall be no reduction in the maximum number of Shares to be purchased
in the Offer, or (v) there shall be no imposition of any condition to the Offer
in addition to those set forth herein which is materially adverse to holders of
the Shares. Purchaser covenants and agrees that, subject to the terms and
conditions of this Agreement, including the Offer Conditions, it will accept for
payment and pay for Shares validly tendered and not withdrawn pursuant to the
Offer as promptly as reasonably practicable; provided, that Purchaser shall
extend the Offer for any period required by any rule, regulation, interpretation
or position of the Commission or the staff thereof applicable to the Offer; and
provided that Purchaser shall have the right, in its sole discretion, to extend
the Offer for up to five business days, notwithstanding the prior satisfaction
of the Offer Conditions, in order to attempt to satisfy the requirements of
Section 253 of the DGCL. The initial expiration date of the Offer shall be 20
business days from the commencement of the Offer in accordance with applicable
law. Subject to the foregoing, it is agreed that the Offer Conditions are for
the benefit of Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such condition (including any action or
inaction by Purchaser or Holdings not inconsistent with the terms hereof) or may
be waived by Purchaser, in whole or in part at any time and from time to time,
in its sole discretion.
(b) As soon as reasonably practicable after the date hereof, and in any
event within five business days from the date hereof, Purchaser and Holdings
shall file their Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1")
and Schedules 13D and 13E-3 with respect to the Offer with the Securities and
Exchange Commission (the "Commission"). The Schedule 14D-1 will contain an Offer
to Purchase and forms of the related letter of transmittal (which Schedule
14D-1, Offer to Purchase and other documents, together with any further
supplements or amendments thereto, are referred to herein collectively as the
"Offer Documents"). Holdings, Purchaser and the Company each agrees promptly to
correct any information provided by it for use in the Offer Documents that shall
have become false or misleading in any material respect, and Holdings and
Purchaser further agree to take all steps necessary to cause the Schedule 14D-1
as so corrected to be filed with the Commission and the other Offer Documents as
so corrected to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. The Company and its
counsel shall be given a reasonable opportunity to review and comment on the
Offer Documents prior to their filing with the Commission. Holdings and
Purchaser agree to provide the Company with any comments that may be received
from the Commission or its staff with respect to the Offer Documents promptly
after receipt thereof.
(c) Notwithstanding any other provision contained herein, the Offer shall
terminate upon termination of this Agreement pursuant to Article VIII.
1.2 Company Action. (a) The Company hereby approves of and consents to
the Offer and represents and warrants that: (i) its Board of Directors, at a
meeting duly called and held on March 24, 1999, has unanimously (excluding
directors who would be considered "interested directors" under Section 144 of
the DGCL and who abstained) (A) determined that this Agreement and the
transactions contemplated hereby,
2
<PAGE> 109
including each of the Offer and the Merger, are fair to and in the best
interests of the holders of Shares, (B) approved this Agreement and the Offer
and the Merger and the other transactions contemplated hereby, (C) declared the
Merger to be advisable and directed that the Merger be submitted for
consideration at a special meeting of the stockholders of the Company, (D)
resolved to recommend that the stockholders of the Company accept the Offer,
tender their Shares to Purchaser thereunder and adopt this Agreement and (E)
approved this Agreement and the Stockholder Documents and the transactions
contemplated hereby and thereby for purposes of Section 203 of the DGCL; and
(ii) Salomon Smith Barney Inc. and Bowles, Hollowell Conner & Co. (the
"Financial Advisors") each has delivered to the Board of Directors of the
Company its written opinion that the consideration to be received by holders of
Shares (other than Holdings and its affiliates) pursuant to each of the Offer
and the Merger is fair to such holders from a financial point of view. The
Company has been authorized by the Financial Advisors to permit, subject to
prior review and consent by such Financial Advisors (such consent not to be
unreasonably withheld), the inclusion of such fairness opinions (or a references
thereto) in the Offer Documents and in the Schedule 14D-9 referred to below and
the Proxy Statement (as defined in Section 5.16). The Company hereby consents to
the inclusion in the Offer Documents of the recommendations of the Company's
Board of Directors described in this Section 1.2(a).
(b) The Company shall file with the Commission, contemporaneously with the
filing of the Schedule 14D-1 pursuant to Section 1.1, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing the
recommendations of the Company's Board of Directors described in Section
1.2(a)(i) and shall promptly mail the Schedule 14D-9 to the stockholders of the
Company, and the Board of Directors of the Company shall not withdraw, amend or
modify in a manner adverse to Holdings or the Purchaser such recommendations (or
announce publicly its intention to do so); provided that prior to the purchase
of Shares pursuant to the Offer, the Company shall not be required to make such
filing with such recommendations or make such mailing and the Board of Directors
shall be permitted to withdraw, amend or modify its recommendations (or publicly
announce its intention to do so) in a manner adverse to Holdings or the
Purchaser if: (1) the Company has complied with Section 6.10, (2) a Superior
Proposal (as defined in Section 6.10) shall have been proposed by any person
other than Holdings or the Purchaser and such proposal is pending at the time of
such action; (3) the Board of Directors shall have concluded in good faith,
after consultation with its outside legal counsel, that the Board of Directors
is required to withdraw, amend or modify such recommendations in order to comply
with its fiduciary duties to the stockholders of the Company under applicable
law; and (4) the Company shall have notified Holdings of such Superior Proposal
at least two business days in advance of such action. The Schedule 14D-9 and all
amendments thereto will comply in all material respects with the Exchange Act
and the rules and regulations promulgated thereunder. The Company, Holdings and
Purchaser each agrees promptly to correct any information provided by it for use
in the Schedule 14D-9 that shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the Commission and disseminated
to holders of Shares, in each case as and to the extent required by applicable
federal securities laws.
(c) In connection with the Offer, if requested by Purchaser, the Company
shall promptly furnish Purchaser with mailing labels, security position
listings, any non-objecting beneficial owner lists and any available listings or
computer files containing the names and addresses of the record holders of
Shares, each as of a recent date, and shall promptly furnish Purchaser with such
additional information (including but not limited to updated lists of
stockholders, mailing labels, security position listings and non-objecting
beneficial owner lists) and such other assistance as Parent, Purchaser, Holdings
or their agents may reasonably require in communicating the Offer to the record
and beneficial holders of Shares.
ARTICLE II
THE MERGER
2.1 The Merger; Filing and Effective Time.
(a) Upon the terms and subject to the conditions of this Agreement and in
accordance with the DGCL, at the Effective Time, the Purchaser shall be merged
into the Company. As a result of the Merger, the
3
<PAGE> 110
separate corporate existence of the Purchaser shall cease and the Company shall
be the surviving corporation (the "Surviving Corporation") following the
effectiveness of the Merger.
(b) The parties hereto shall cause the Merger to be consummated by filing a
certificate of merger or, if applicable, a certificate of ownership and merger
with the Secretary of State of the State of Delaware, in such form as required
by and executed in accordance with the relevant provisions of the DGCL (the date
and time of the filing of such certificate with the Secretary of State of the
State of Delaware (or such later time as is agreed to by the parties hereto and
set forth therein) being the "Effective Time").
2.2 Closing. The closing of the Merger (the "Closing") will take place as
soon as practicable after satisfaction or waiver of the conditions set forth in
Article VII (the "Closing Date"), at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York 10017, unless another date or place is
agreed to in writing by the parties hereto.
2.3 Effects of the Merger. The Merger shall have the effects set forth in
the applicable provisions of the DGCL.
2.4 Certificate of Incorporation; By Laws.
(a) At the Effective Time, the certificate of incorporation of the Company
as in effect immediately prior to the Effective Time shall be amended so as to
read in its entirety in the form set forth as Exhibit A hereto and, as so
amended, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter further amended as provided therein and under the DGCL.
(b) At the Effective Time, the By-laws of the Purchaser as in effect
immediately prior to the Effective Time in the form set forth as Exhibit B
hereto shall be the By-laws of the Surviving Corporation following the Merger
and thereafter may be amended or repealed in accordance with their terms or the
certificate of incorporation of the Surviving Corporation following the Merger
and as provided under the DGCL.
2.5 Directors and Officers. The directors of the Purchaser immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation following the Merger, each to hold office in accordance with the
certificate of incorporation and by-laws of the Surviving Corporation following
the Merger, and the officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation following the
Merger, in each case until their respective successors are duly elected or
appointed (as the case may be) and qualified.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF COMPANY AND THE MERGER SUB
3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the Company, the Purchaser or any
holder of any shares of Company Common Stock or any holder of capital stock of
the Purchaser, the outstanding capital stock of the Purchaser and the Company
shall be converted or cancelled as follows:
(a) Conversion of Common Stock of the Purchaser. Each share of common
stock of the Purchaser outstanding immediately prior to the Effective Time
shall be converted into and become one validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.
(b) Cancellation of Certain Company Common Stock. Each share of
Company Common Stock outstanding immediately prior to the Effective Time
that is owned by Holdings, the Purchaser or any other direct or indirect
subsidiary of Holdings or held in the treasury of the Company shall
automatically be cancelled and retired and shall cease to exist, and no
cash or other consideration shall be delivered or deliverable in exchange
therefor.
(c) Conversion of Company Common Stock. Each outstanding share of
Company Common Stock (other than any such shares of Company Common Stock to
be cancelled pursuant to Sec-
4
<PAGE> 111
tion 3.1(b)) and any Dissenting Shares (as defined in Section 3.3) shall be
converted into the right to receive an amount in cash equal to the greater
of $9.25 or any higher price paid pursuant to the Offer (the "Merger
Consideration").
(d) Cancellation and Retirement of Company Common Stock. All shares
of Company Common Stock issued and outstanding immediately prior to the
Effective Time 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 of Company Common Stock shall, to
the extent such certificate represents such shares of Company Common Stock,
cease to have any rights with respect thereto, except the right to receive
the Merger Consideration upon surrender of such certificate in accordance
with Section 3.4.
3.2 Company Options. At the Effective Time, each option (a "Company
Option") to purchase shares of Company Common Stock outstanding immediately
prior to the Effective Time shall become immediately vested. Each Company Option
with an exercise price per share of Company Common Stock less than the Merger
Consideration shall automatically be converted into the right to receive cash in
the amount of the product of (a) the Merger Consideration minus such exercise
price, multiplied by (b) the number of shares of Company Common Stock for which
such Company Option is exercisable. All other Company Options outstanding as of
the Effective Time shall automatically be terminated effective as of the
Effective Time. The holders of all Company Options subject to automatic
conversion pursuant to this Section 3.2 are herein referred to as the "Eligible
Option Holders." Prior to the purchase of Shares pursuant to the Offer, the
Board of Directors of the Company (or, if appropriate, any committee
administering the plan(s) pursuant to which the Company Options have been
granted) shall adopt such resolutions, obtain such consents, or take such other
actions as are required to effect the transactions contemplated by this Section
3.2.
3.3 Dissenters' Rights. Notwithstanding any provision of this Agreement
to the contrary, any shares of Company Common Stock outstanding immediately
prior to the Effective Time held by a holder who has demanded and perfected the
right, if any, for appraisal of those shares of Company Common Stock in
accordance with the provisions of Section 262 of the DGCL and as of the
Effective Time has not withdrawn or lost such right to such appraisal
("Dissenting Shares") shall not be converted into or represent a right to
receive Merger Consideration, but the holder shall only be entitled to such
rights as are granted by the DGCL. If a holder of shares of Company Common Stock
who demands appraisal of those shares of Company Common Stock under the DGCL
shall effectively withdraw or lose (through failure to perfect or otherwise) the
right to appraisal, then, as of the Effective Time or the occurrence of such
event, whichever last occurs, those shares of Company Common Stock shall be
converted into and represent only the right to receive the Merger Consideration
as provided in Section 3.1(c), without interest, upon the surrender of the
certificate or certificates representing those shares of Company Common Stock.
The Company shall give the Purchaser (i) prompt notice of any written demands
for appraisal of any shares of Company Common Stock, attempted withdrawals of
such demands, and any other instruments served pursuant to the DGCL received by
the Company relating to stockholders' rights of appraisal and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of the Purchaser, voluntarily make any payment with
respect to any such demands for appraisals of capital stock of the Company,
offer to settle or settle any such demands or approve any withdrawal of any such
demands.
3.4 Paying Agent. (a) Prior to the Effective Time, Purchaser shall
designate a bank or trust company to act as agent for the holders of Shares in
connection with the Merger (the "Paying Agent") to receive the Merger
Consideration to which holders of Shares shall become entitled pursuant to
Section 3.1(c). When and as needed, Holdings or Purchaser will make available to
the Paying Agent sufficient funds to make all payments pursuant to Section
3.4(b). Such funds shall be invested by the Paying Agent as directed by
Purchaser or, after the Effective Time, the Surviving Corporation, provided that
such investments shall be in obligations of or guaranteed by the United States
of America, in commercial paper obligations rated A-1 or P-1 or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or in certificates of deposit, bank repurchase agreements or banker's
acceptances of commercial banks with capital exceeding $500 million. Any net
profit resulting from, or interest or income produced by, such investments will
be payable to the Surviving Corporation or Holdings, as Holdings directs.
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(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Shares (the "Certificates"), a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. Upon surrender to
the Paying Agent of a Certificate, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such Certificate,
and such Certificate shall then be cancelled. No interest shall be paid or
accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the Certificates. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable.
(c) At any time following six months after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds (including any interest received with respect thereto) which had
been made available to the Paying Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Certificate for Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Company Common Stock on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares except as otherwise provided for herein or by
applicable law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE PURCHASER
Holdings and the Purchaser, jointly and severally, represent and warrant to
the Company that the statements contained in this Article IV are true and
correct, except as set forth in the disclosure statement delivered by the
Purchaser to the Company concurrently herewith and identified as the "Purchaser
Disclosure Statement." All exceptions noted in the Purchaser Disclosure
Statement shall be numbered to correspond to the applicable Sections to which
such exception refers; provided, however, that any disclosure set forth on any
particular schedule shall be deemed disclosed in reference to all applicable
schedules if the disclosure in respect of the particular schedule is sufficient
on its face without further inquiry reasonably to inform the Company of the
information required to be disclosed in respect of the other schedules to avoid
a breach under the provisions hereof corresponding to such other schedules.
4.1 Existence, Good Standing, Corporate Authority. Each of Holdings and
the Purchaser (i) is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation; (ii) has all
requisite power and authority to own or lease and operate its properties and
assets, and to carry on its business as now conducted and as currently proposed
to be conducted prior to the Effective Time, except where the failure to have
such power and authority would not have a Material Adverse Effect (as
hereinafter defined) on Holdings, and to consummate the transactions
contemplated hereby; (iii) is duly
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qualified or licensed to do business and is in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed, except where the failure to
so qualify, individually or in the aggregate, would not have a Material Adverse
Effect on Holdings; and (iv) has obtained all licenses, permits, franchises and
other governmental authorizations necessary to the ownership or operation of its
properties or the conduct of its business, except where the failure to have
obtained such licenses, permits, franchises or authorizations would not have a
Material Adverse Effect on Holdings. The copies of the Certificate of
Incorporation and By-laws of each of Holdings and Purchaser as in effect on the
date hereof have been previously delivered to the Company and are true and
correct. For purposes of this Agreement, a "Material Adverse Effect" when used
with respect to any entity means (a) any change or effect that is, individually
or in the aggregate, materially adverse to the business, operations, assets,
liabilities, financial condition or results of operations of such entity and its
subsidiaries and controlled entities taken as a whole, or (b) a material
impairment on the ability of such entity or its subsidiaries and controlled
entities taken as a whole to perform any of their material obligations under
this Agreement or to consummate the Merger.
4.2 Authorization of Agreement and Other Documents. The execution and
delivery of this Agreement has been duly authorized by the Board of Directors of
each of Holdings and the Purchaser and no other proceedings on the part of
Holdings, the Purchaser or their respective stockholders are necessary to
authorize the execution, delivery or performance of this Agreement. This
Agreement is a valid and binding obligation of each of Holdings and the
Purchaser, enforceable against each of Holdings and the Purchaser in accordance
with its terms.
4.3 Non-Contravention. The execution, delivery and performance of this
Agreement by each of Holdings and the Purchaser and the consummation by each of
Holdings and the Purchaser of the transactions contemplated hereby to be
consummated by it, will not (i) violate or conflict with any provision of any
law applicable to Holdings or the Purchaser or by which any property or asset of
Holdings or the Purchaser is bound, (ii) require the consent, waiver, approval,
license or authorization of or any filing by Holdings or the Purchaser with any
public authority (other than (a) the filing of a pre-merger notification report
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (b) in connection with or in compliance with the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act, and
the DGCL, and (c) applicable state statutes and regulations regulating the
conduct of the Surviving Corporation's business as identified in the Purchaser
Disclosure Statement), (iii) conflict with or result in any breach of any
provision of the Certificate of Incorporation or By-laws of Holdings or the
Purchaser in any respect or (iv) violate, conflict with, result in a breach of
or the acceleration of any obligation under, or constitute a default (or an
event which with notice or the lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Holdings or the Purchaser pursuant to any provision of any
indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, ordinance, regulation or decree to which Holdings or the Purchaser is
subject or by which Holdings or the Purchaser or any of their property or assets
is bound; except in the case of clauses (i), (ii) and (iv) above where such
violations, conflicts, breaches, defaults or the failure to give such notice,
make such filings, or obtain such authorizations, consents or approvals, would
not, individually or in the aggregate, have a Material Adverse Effect on
Holdings.
4.4 Disclosure Documents. The Offer Documents, as filed pursuant to
Section 1.1, will not, at the time such Offer Documents are filed with the
Commission or are first published, sent or given to stockholders, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Holdings
for inclusion in the Proxy Statement shall not, on the date the Proxy Statement
is first mailed to stockholders, at the time of the Stockholders Meeting (as
defined in Section 6.2) or at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not false or misleading or necessary to correct any
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statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meeting which has become false or misleading.
Notwithstanding the foregoing, Holdings and Purchaser make no representation or
warranty with respect to any information supplied by the Company or any of its
representatives which is contained in or incorporated by reference in any of the
foregoing documents or the Offer Documents. The Offer Documents, as amended and
supplemented, will comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
4.5 Brokers. No person is entitled to any brokerage or finder's fee or
commission in connection with the transactions contemplated by this Agreement as
a result of any action taken by or on behalf of Holdings or the Purchaser other
than Vestar Capital Partners.
4.6 Commitment Letters. Executed commitment letters from Vestar (the
"Vestar Commitment Letter") and NationsBank, N.A. (the "NationsBank Commitment
Letter") and an executed letter from NationsBanc Montgomery Securities LLC
stating that it is highly confident that it can provide subordinated debt
financing in connection with the transaction contemplated by this Agreement (the
"Highly Confident Letter") (the Highly Confident Letter, the Vestar Commitment
Letter and the NationsBank Commitment Letter, collectively, the "Commitment
Letters") are included in Section 4.6 of the Purchaser Disclosure Statement. As
of the date of this Agreement, the Commitment Letters provided to the Company
are in full force and effect and have not been amended in any material respect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Holdings and the Purchaser that the
statements contained in this Article V are true and correct, except as set forth
in the disclosure statement delivered by the Company to Holdings concurrently
herewith and identified as the "Company Disclosure Statement." All exceptions
noted in the Company Disclosure Statement shall be numbered to correspond to the
applicable Sections to which such exception refers; provided, however that any
disclosure set forth in any particular schedule shall be deemed disclosed in
reference to all applicable schedules if the disclosure in respect of the
particular schedule is sufficient on its face without further inquiry reasonably
to inform Holdings of the information required to be disclosed in respect of the
other schedules to avoid a breach under the provisions hereof corresponding to
such other schedules.
5.1 Organization, Standing and Qualification. Each of the Company and the
Controlled Entities (as defined in Section 5.3) (i) is a corporation duly
organized, validly existing and in good standing under the laws in the
jurisdiction of its incorporation; (ii) has all requisite power and authority to
own or lease and operate its properties and assets, and to carry on its business
as now conducted and as currently proposed to be conducted, except where the
failure to have such power and authority would not have a Material Adverse
Effect on the Company, and to consummate the transactions contemplated hereby;
(iii) is duly qualified or licensed to do business and is in good standing in
all jurisdictions in which it owns or leases property or in which the conduct of
its business requires it to so qualify or be licensed except where the failure
to so qualify, individually or in the aggregate, would not have a Material
Adverse Effect on the Company; and (iv) has obtained all licenses, permits,
franchises and other governmental authorizations necessary for the ownership or
operation of its properties or the conduct of its businesses except where the
failure to have obtained such licenses, permits, franchises or authorizations
would not have a Material Adverse Effect on the Company.
5.2 Capitalization.
(a) The total authorized capital stock of the Company consists of (i)
5,000,000 shares of Convertible Preferred Stock, par value $.01 per share, no
shares of which are issued and outstanding as of the date of this Agreement; and
(ii) 21,000,000 shares of Company Common Stock, of which 296,638 shares of Class
A Common Stock and 6,290,178 shares of Voting Common Stock are issued and
outstanding on the date of this Agreement. There are no shares of capital stock
of the Company of any other class authorized, issued or outstanding.
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(b) Each outstanding share of Company Common Stock is (i) duly authorized
and validly issued and (ii) fully paid and nonassessable and free of any
preemptive and similar rights.
(c) Other than Company Options that will become vested (and converted into
the right to receive cash) or canceled at the Effective Time pursuant to Article
III hereof, as of the Effective Time, there will be no outstanding (i)
securities convertible into or exchangeable for any capital stock of the
Company, (ii) options, warrants or other rights to purchase or subscribe to
capital stock of the Company or securities convertible into or exchangeable for
capital stock of the Company, or (iii) contracts, commitments, agreements,
understandings, rights (including registration rights), arrangements, calls or
claims of any kind to which the Company is a party or is bound relating to the
issuance of any capital stock of the Company, including the commitments referred
to in Section 5.2(c)(iii) of the Company Disclosure Statement. Section 5.2(c) of
the Company Disclosure Statement identifies, as of the date hereof, the option
holder, the number of shares of Company Common Stock subject to each Company
Option, the exercise price and the expiration date of each outstanding Company
Option.
5.3 Subsidiaries. The Company owns directly or indirectly each of the
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect directors or others performing
similar functions with respect to such subsidiary) of each of the Company's
subsidiaries indicated in Part I of Section 5.3 of the Company Disclosure
Statement as being owned by the Company (the "Subsidiaries") and has an
ownership interest or the right to purchase those entities listed on Parts II
and III of Section 5.3 of the Company Disclosure Statement (together with the
Subsidiaries, the "Controlled Entities"), and the Controlled Entities are the
only entities in which the Company directly or indirectly beneficially owns an
equity interest. Each of the outstanding shares of capital stock beneficially
owned by the Company of each of the Company's Controlled Entities is duly
authorized, validly issued, fully paid and nonassessable, and is owned, directly
or indirectly, by the Company or a wholly owned Subsidiary free and clear of all
liens, pledges, security interests, claims or other encumbrances.
5.4 Constituent Documents. True and complete copies of the Certificate of
Incorporation and all amendments thereto, the By-laws, as amended and currently
in force, and all corporate minute books and records of the Company and each of
its Controlled Entities have been furnished by the Company to the Purchaser for
inspection to the extent requested by the Purchaser.
5.5 Authorization of Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company and no other
proceedings on the part of the Company are necessary to authorize the execution,
delivery or performance of this Agreement, except for the Requisite Stockholder
Approval. This Agreement is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
5.6 Non-Contravention. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) violate or conflict with any provision of any
law applicable to the Company or any of its Controlled Entities or by which any
property or asset of the Company or any of its Controlled Entities is bound,
(ii) require any material consent, waiver, approval, license, qualification,
order or authorization of or any filing by the Company or any of its Controlled
Entities with any public authority (other than (a) the filing of a pre-merger
notification report under the HSR Act, (b) in connection with or in compliance
with the provisions of the Securities Act, the Exchange Act and the DGCL and (c)
applicable state statutes and regulations regulating the conduct of the
Surviving Corporation's business as identified in the Company Disclosure
Statement), (iii) conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-laws of the Company or any of its Controlled
Entities in any respect or (iv) except as set forth in Section 5.6 of the
Company Disclosure Statement, violate, conflict with, result in a breach of or
the acceleration of any obligation under, or constitute a default (or an event
which with notice or the lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property or
asset of the Company or any of its Controlled Entities pursuant to, any
provision of any material indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, license, ordinance, permit, franchise, joint
venture agreement, limited liability company agreement,
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partnership agreement, regulation or decree to which the Company or any of its
Controlled Entities is subject or by which the Company or any of its Controlled
Entities or any of their property or assets is bound (including without
limitation Material Contracts in existence on the date hereof between any entity
affiliated with Columbia/HCA Healthcare Corporation or Tenet Healthcare
Corporation or any of the Company's managed care providers, on the one hand, and
any of the Company and its Controlled Entities, on the other hand); except in
the case of clause (i) where such violation or conflict would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
5.7 Compliance with Laws.
(a) The Company and the Controlled Entities hold all permits, licenses,
variances, exemptions, orders and approvals of any governmental entities
necessary for the lawful conduct of their business (the "Permits"), except where
the failure to hold such Permits would not have a Material Adverse Effect on the
Company.
(b) Since the later of the date on which the particular Controlled Entity
was acquired (the "Controlled Entity Acquisition Date") and January 1, 1996, the
Company and the Controlled Entities have been in substantial compliance with the
terms of the Permits.
(c) As of the date of this Agreement, no investigation, review, inquiry or
proceeding by any governmental entity with respect to any of the Company and the
Controlled Entities is, to the knowledge of the Company, pending or threatened
which, if adversely decided, would be reasonably likely to have a Material
Adverse Effect on the Company.
5.8 Commission Documents. The Company has delivered or made available to
Holdings each registration statement, report, proxy statement or information
statement (as defined in Regulation 14C under the Exchange Act) prepared by it
since January 1, 1996, which reports constitute all of the documents required to
be filed by the Company with the Commission since such date, each in the form
(excluding exhibits and any amendments thereto) filed with the Commission
(collectively, the "Company Reports"). As of their respective dates, the Company
Reports and any Company Reports filed after the date hereof and prior to the
Effective Time (a) complied as to form in all material respects with the
applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations thereunder; and (b) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The Company has
timely filed with the Commission all reports required to be filed under Section
13, 14 and 15(d) of the Exchange Act since January 1, 1996. Each of the
consolidated balance sheets of the Company included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
fairly present in all material respects the consolidated financial position of
the Company and its Subsidiaries as of its date (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect, and each of the consolidated statements of income,
retained earnings and cash flows of the Company included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly present in all material respects the results of operations, stockholders
equity or cash flows, as the case may be, of the Company and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount or
effect). The financial statements of the Company, including the notes thereto,
included in or incorporated by reference into the Company Reports comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the Commission with respect thereto, and
have been prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto). Since
January 1, 1996, there has been no material change in the Company's accounting
methods or principles except as described in the notes to such Company financial
statements.
5.9 Insurance. Section 5.9 of the Company Disclosure Statement contains a
list of all insurance policies which are owned by any of the Company and the
Controlled Entities or which name the Company or any Controlled Entity as an
insured (or loss payee), including without limitation those which pertain to the
assets, employees or operations of the Company and the Controlled Entities. All
such insurance policies are in full force and effect and the Company has not
received notice of cancellation of any such insurance policies.
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5.10 Litigation. Except as set forth in Section 5.10 of the Company
Disclosure Statement, there is no suit, claim, action, litigation or proceeding,
in law or in equity, and there are no proceedings or governmental investigations
before any commission or other administrative authority, pending or, to the
Company's knowledge, threatened against the Company, or any of the Company's
officers, directors or affiliates, with respect to or affecting the Company's
operations, businesses, or financial condition, or related to the consummation
of the transactions contemplated hereby which, is reasonably likely to have a
Material Adverse Effect on the Company.
5.11 Taxes.
(a) As used in this Agreement, (i) the term "Taxes" means all federal,
state, local, foreign and other income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees, assessments or charges
of any kind whatever of a nature similar to taxes, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto,
and the term "Tax" means any one of the foregoing Taxes; and (ii) the term
"Returns" means all returns, declarations, reports, statements and other
documents required to be filed in respect of Taxes, including any schedule or
attachment thereto, and including any amendment thereto, and the term "Return"
means any one of the foregoing Returns. The representations contained in this
Section 5.11 with respect to a Controlled Entity are made with respect to such
Controlled Entity from the date of the Controlled Entity Acquisition Date.
(b) There have been properly completed and filed on a timely basis and in
correct form all material Returns required to be filed by the Company or its
Controlled Entities or requests for extensions to file such Tax Returns have
been timely filed and the Company and its Controlled Entities are within such
period for extension. As of the time of filing, the foregoing Returns were
correct and complete in all material respects.
(c) With respect to all amounts in respect of Taxes imposed upon the
Company or its Controlled Entities, or for which the Company or its Controlled
Entities is or could be liable, whether to taxing authorities (as, for example,
under law) or to other persons or entities (as, for example, under tax
allocation agreements), with respect to all taxable periods or portions of
periods ending on or before December 31, 1998, (i) all applicable tax laws and
agreements have been complied with in all material respects, and (ii) all
amounts required to be paid by the Company or its Controlled Entities to taxing
authorities on or before the date hereof have been paid and with respect to
Taxes not yet due and owing to a taxing authority, such Taxes have been paid or
adequately reserved for on the Company's financial statements in accordance with
generally accepted accounting principles.
(d) There are no audits or similar proceedings by any taxing authority
pending or threatened with respect to Taxes, except as disclosed in Section
5.11(d) of the Company Disclosure Statement. No assessment of Tax has been
proposed against the Company or its Controlled Entities or any of their
respective assets or properties. No closing agreement pursuant to Section 7121
or any similar provision of any state, local or foreign law has been entered
into by or with respect to the Company or its Controlled Entities, except as
disclosed in Section 5.11(d) of the Company Disclosure Statement. There are no
outstanding agreements, waivers or arrangements extending the statutory period
of limitation applicable to any claim for, or the period of collection or
assessment of, Taxes due from or with respect to the Company or its Controlled
Entities for any taxable period, and no power of attorney granted by or with
respect to the Company or its Controlled Entities relating to Taxes is currently
in force.
(e) Neither the Company nor any of its Controlled Entities is a party to or
bound by any Tax allocation, Tax indemnity, Tax sharing or similar contract or
arrangement or any agreement that obligates it to make payment computed by
reference to the Taxes, taxable income or taxable losses of any other person.
(f) The Company and its Controlled Entities (i) are not, and have not been,
a member of an affiliated group filing a consolidated federal income Tax return
(other than a group the common parent of which is the Company), and (ii) has no
liability for the Taxes of any person under Treasury Regulation section 1502 (or
any similar provision of state, local or foreign law), or as a transferee or
successor, by contract or otherwise.
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(g) There are no liens with respect to Taxes upon any of the assets or
properties of the Company or its Controlled Entities, other than with respect to
Taxes not yet due.
(h) The Company and its Controlled Entities have collected all sales and
use Taxes required to be collected and has remitted, or will remit on a timely
basis, such amount to the appropriate governmental entities, or have been
furnished properly completed exemption certificates. The Company and its
Controlled Entities have duly and timely withheld from employee salaries, wages
and other compensation and paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods for which the
statute of limitation has not expired.
5.12 ERISA.
(a) Section 5.12(a) of the Company Disclosure Statement contains a list and
brief description of all "employee pension benefit plans" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (sometimes referred to herein as "Pension Plans"), "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA and referred to herein as a
"Welfare Plan") and all other Benefit Plans (defined herein as any Pension Plan,
Welfare Plan and any other plan, fund, program, arrangement or agreement to
provide employees, directors, independent contractors, officers or agents of any
Commonly Controlled Entity (as hereinafter defined) with medical, health, life,
bonus, incentive, change in control, employment, stock (option, ownership or
purchase), deferred compensation, severance, salary continuation, vacation, sick
leave, fringe, incentive insurance or other benefits), whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in the
future as a result of the transactions contemplated by this Agreement or
otherwise), whether oral or written that is currently maintained, or contributed
to, or required to be contributed to, by the Company or any other person that,
together with the Company at any time during the last six years, is or was
treated as a single employer under Section 414(b), (c), (m) or (o) of the
Internal Revenue Code of 1986, as amended (the "Code") (the Company and each
such other person, a "Commonly Controlled Entity"), for the benefit of any
current or former employees, officers or directors of any Commonly Controlled
Entity. The Company has delivered or made available to Holdings true, complete
and correct copies of (i) each Benefit Plan (or, in the case of any unwritten
Benefit Plans, descriptions thereof), (ii) the most recent annual report on
Forms 5500 and 990, if any, filed with the Internal Revenue Service with respect
to each Benefit Plan (if any such report was required), (iii) the most recent
summary plan description for each Benefit Plan for which such summary plan
description is required, (iv) each trust agreement and group annuity contract
relating to any Benefit Plan; and (v) a list of all assets and liabilities of,
allocated to or accounted for separately with respect to every Benefit Plan
(including insurance contracts associated with every Benefit Plan regardless of
whether any current cash value exists). Each Benefit Plan has been established,
funded, maintained and administered in accordance with its terms and is in
compliance with the applicable provisions of ERISA, the Code and all other
applicable laws, except where the failure to comply would not be reasonably
expected to result in a Material Adverse Effect on the Company.
(b) All Pension Plans have been the subject of favorable and up-to-date
(through any applicable remedial amendment period) determination letters from
the Internal Revenue Service, or have filed a timely application therefor, to
the effect that such Pension Plans are qualified and exempt from federal income
taxes under Section 401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor has any such Pension Plan been amended
since the date of its most recent determination letter or application therefor
in any respect that would adversely affect its qualification or materially
increase its costs.
(c) No Commonly Controlled Entity has adopted or been obligated to
contribute to any "defined benefit pension plan" as defined in Section 3(35) of
ERISA subject to Title IV of ERISA in the six (6) years preceding the date
hereof and no Commonly Controlled Entity has incurred any liability under Title
IV of ERISA.
(d) No Benefit Plan is a "multiemployer plan" and neither the Company nor
any Commonly Controlled Entity at any time has been required to contribute to
any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA ) or has
withdrawn from any multiemployer plan where such withdrawal has either: (i)
resulted or would result in any "withdrawal liability" (within the meaning of
Section 4201 of
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ERISA) that has not been fully paid; or (ii) engaged in a transaction that might
have resulted in withdrawal liability but for the application of Section 4204 of
ERISA.
(e) With respect to any Welfare Plan, (i) no such Welfare Plan is funded
through a "welfare benefits fund", as such term is defined in Section 419(e) of
the Code, (ii) no such Welfare Plan is self-insured, and (iii) each such Welfare
Plan that is a "group health plan", as such term is defined in Section
5000(b)(1) of the Code, complies with the applicable requirements of Section
4980B(f) of the Code.
(f) All contributions or premiums owed by Commonly Controlled Entities with
respect to Benefit Plans under law, contract or otherwise have been made in full
and on a timely basis and the Commonly Controlled Entities are not obligated to
contribute with respect to any Benefit Plan that involves a retroactive
contribution, assessment or funding waiver arrangement. All administrative costs
attributable to Benefit Plans have been paid when due.
(g) To the Company's knowledge, no Pension Plan or Welfare Plan or any
"fiduciary" or "party-in-interest" (as such terms are respectively defined by
Sections 3(21) and 3(14) of ERISA) thereto has engaged in a transaction
prohibited by Section 406 of ERISA or 4975 of the Code for which a valid
exception is not available.
(h) No Benefit Plan exists that could result in the payment to any present
or former employee of a Commonly Controlled Entity of any money or other
property or accelerate or provide any other rights or benefits to any present or
former employee of a Commonly Controlled Entity as a result of the transactions
contemplated by this Agreement, whether or not such payment would constitute a
parachute payment within the meaning of Section 280G of the Code.
5.13 Environmental Matters; OSHA. The Company and its Controlled Entities
are in substantial compliance with all Environmental Laws. For the purposes of
this Agreement, "Environmental Laws" means all federal, state and local
statutes, regulations, ordinances, rules, regulations and policies, all court
orders and decrees and arbitration awards, and the common law, which pertain to
environmental matters or contamination of any type whatsoever. The Company and
its Controlled Entities are in substantial compliance with the Occupational
Health and Safety Act and the rules and regulations thereunder.
5.14 Interim Conduct of Business. Except as otherwise contemplated by
this Agreement or as provided in the Company Disclosure Statement, since
December 31, 1998, the Company and the Controlled Entities have not:
(a) sold, assigned, leased, exchanged, transferred or otherwise
disposed of any portion of its assets or property that is material to the
Company and its Controlled Entities taken as a whole, except for cash
applied in the payment of the Company's liabilities in the usual and
ordinary course of business in accordance with the Company's or its
Controlled Entities' past practices;
(b) written off any asset which has a net book value which exceeds
$25,000 individually or $125,000 in the aggregate, or suffered any
casualty, damage, destruction or loss, or interruption in use, of any
material asset, property (whether or not covered by insurance), on account
of fire, flood, riot, strike or other hazard or Act of God;
(c) waived any material right arising out of the conduct of, or with
respect to, its business;
(d) made (or committed to make) capital expenditures in an amount
which exceeds $250,000 for any item or $2,500,000 in the aggregate;
(e) made any change in accounting methods or principles;
(f) borrowed any money other than in the ordinary course of business
pursuant to its existing credit facilities or issued any bonds, debentures,
notes or other corporate securities (other than equity securities),
including without limitation, those evidencing borrowed money or to make
acquisitions referred to in the Company Disclosure Statement or to satisfy
commitments to purchase entities referred to in the Company Disclosure
Statement;
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(g) increased the compensation payable to any employee, except for
normal pay increases in the ordinary course of business consistent with
past practices;
(h) made any payments or distributions to its employees, officers or
directors, except such amounts as constitute currently effective
compensation for services rendered, or reimbursement for reasonable
ordinary and necessary out-of-pocket business expenses;
(i) adopted any new Pension Plan, Welfare Plan or other Benefit Plan;
(j) issued or sold any of its securities of any class;
(k) paid, declared or set aside any dividend or other distribution on
its securities of any class, or purchased, exchanged or redeemed any of its
securities of any class;
(l) suffered or been affected by any condition, event or occurrence
which would be reasonably likely to have a Material Adverse Effect on the
Company; or
(m) made or changed any Tax election or method of accounting with
respect to Taxes, or filed any amended Tax return, or settled or
compromised any examination or proceeding with respect to any material Tax
liability.
Notwithstanding the foregoing, the Company shall not be deemed to have breached
the terms of this Section 5.14 by entering into this Agreement or by
consummating the transactions contemplated hereby.
5.15 No Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm which may result in an
obligation of the Company, Holdings or the Purchaser to pay any finder's fee,
brokerage or agent's commissions or other like payments in connection with
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that the Company has retained the Financial
Advisors, the arrangements with both of which have been disclosed in writing to
Holdings prior to the date hereof.
5.16 Disclosure Documents. Neither the Schedule 14D-9, nor any of the
information supplied by the Company for inclusion in the Offer Documents, shall,
at the respective times such Schedule 14D-9, the Offer Documents or any
amendments or supplements thereto are filed with the Commission or are first
published, sent or given to stockholders, as the case may be, 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 the
light of the circumstances under which they were made, not misleading. Neither
the proxy statement to be sent to the stockholders of the Company in connection
with the Stockholders Meeting nor the information statement to be sent to such
stockholders, in each case if required and as appropriate (such proxy statement
or information statement, as amended or supplemented, is herein referred to as
the "Proxy Statement"), shall, at the date the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to stockholders and at the time
of the Stockholders Meeting and at the Effective Time, be false or misleading
with respect to any material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they are made, not misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders Meeting which has become false
or misleading. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Holdings
or Purchaser or any of their respective representatives which is contained in
the Schedule 14D-9 or the Proxy Statement. The Schedule 14D-9 and the Proxy
Statement will comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder.
5.17 Billing and Coding. Except in the situations that would not have a
Material Adverse Effect on the Company, the Company and, since the applicable
Controlled Entity Acquisition Dates, the Controlled Entities have, whether
directly or indirectly through contractual arrangements with others, billed
third party payers (including, but not limited to, Medicare, Medicaid, CHAMPUS
and private payers) for health care services rendered by the Company, its
Controlled Entities, or any of its or their employees, professional staff, or
other persons or entities on behalf of whom or for which the Company or any of
its Controlled Entities is authorized to bill for health care services, in
accordance in all material respects with all federal, state and local
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laws, rules and regulations, and all agreements, applicable with respect
thereto. Without limiting the generality of the foregoing, for said purposes all
such services have been properly documented and coded, except to the extent the
failure to so comply or to do so would not have a Material Adverse Effect on the
Company.
5.18 Properties.
(a) The Company and its Controlled Entities have good, valid and, in the
case of its Owned Property (as defined below), marketable fee title to its real
property and interests in real property indicated as being owned by the Company
and its Controlled Entities in the financial statements included in the Company
Reports, except for properties sold or otherwise disposed of in the ordinary
course of business (the "Owned Properties", free and clear of all mortgages,
liens, security interests, easements, covenants, rights-of-way and other similar
restrictions and encumbrances ("Encumbrances"), except where the failure to have
such marketable fee title would not interfere in any material respect with the
conduct of the business of the Company and the Controlled Entities as currently
conducted. The leases relating to the Company's leased real property ("Company
Leases") are in full force and effect, free and clear of all Encumbrances except
where the failure to have such marketable fee title would not interfere with the
conduct of business of the Company as currently conducted, and, to the best
knowledge of the Company, are not in default.
(b) No consent or approval is required to be obtained under any agreement
by which the Company or any of its Subsidiaries has obtained a leasehold
interest in any leased property by or with respect to the Company or any
Subsidiary of the Company, and no right of termination shall arise under any
Company Lease nor does any landlord have the right to increase the rent payable
under any Company Lease, in each case in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, except to the extent that the foregoing
individually or in the aggregate would not have a Material Adverse Effect on the
Company.
(c) Neither the Company nor any of its Controlled Entities is obligated
under or bound by any option, right of first refusal, purchase contract, or
other contractual right to sell or dispose of any Owned Property or any portions
thereof or interests therein which property, portions and interests,
individually or in the aggregate, are material to the Company.
(d) Neither the Company nor any of its Controlled Entities or any
affiliates of any of the foregoing has an ownership, financial or other interest
in the landlord under any of the Company Leases which exceeds a 50% ownership,
financial or other interest in such landlord.
5.19 Material Contract Defaults; Non-Compete.
(a) To the actual knowledge of any of the Company's senior officers,
neither the Company nor any of its Controlled Entities is, or has received any
notice or has any knowledge that any other party is, in default or unable to
perform in any respect under any material contracts, agreements, commitments,
arrangements, leases, licenses, policies or other instruments to which it or any
of the Controlled Entities is a party or by which it or any such Controlled
Entity is bound ("Material Contracts"), except for those defaults which would
not reasonably be expected, either individually or in the aggregate, to have a
Material Adverse Effect on the Company, and, there has not occurred any event
that with the lapse of time or the giving of notice or both would constitute
such a default, except for those defaults which would not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect on the Company. Neither the Company nor any of the Controlled Entities is
a party to any Material Contract that is required to be disclosed as an exhibit
to the Company Reports in accordance with the rules and regulations of the
Commission that has not been so disclosed.
(b) Neither the Company nor any of its Controlled Entities is a party to
any agreement that expressly limits the ability of the Company or any of its
Controlled Entities to compete in or conduct any line of business or compete
with any person in any geographic area or during any period of time.
(c) There has not occurred any event that with the lapse of time or the
giving of notice or both would reasonably be likely to result in the, and
neither the Company nor any of its Controlled Entities has received any notice
or has any knowledge of any reasonably likely, cancellation or modification
adverse to the Company
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or any of its Controlled Entities of any material contract or arrangement with
any of South Broward Hospital District (d/b/a Memorial Healthcare System,) any
entity affiliated with Columbia/HCA Healthcare Corporation and any entity
affiliated with Tenet Healthcare Corporation. For purposes of this Section
5.19(c), "material" shall mean a contract or arrangement which generated in
excess of $200,000 of gross profit during the fiscal year ended December 31,
1998.
5.20 Transactions with Affiliates. Except as set forth in the Company
Reports and except with respect to physician practices within the Controlled
Entities, there has been no transaction, agreement, arrangement or
understanding, or any related series thereof, between the Company or its
Controlled Entities or contractors, on the one hand, and the Company's
affiliates (other than wholly-owned (excluding directors' and nominee shares)
Subsidiaries), on the other hand, in which the amount or value involved exceeded
$20,000. As used in the definition of "affiliate", the term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
5.21 Vote Required; State Takeover Statutes.
(a) The affirmative vote of the holders of a majority of the outstanding
shares of Voting Common Stock entitled to vote thereon (the "Requisite
Stockholder Approval") are the only votes of holders of the Company's capital
stock necessary to adopt this Agreement.
(b) No state takeover statute or similar statute or regulation of the State
of Delaware (and, to the knowledge of the Company after due inquiry, of any
other jurisdiction) applies or purports to apply to this Agreement, the Merger,
the Offer or any of the other transactions contemplated hereby. No provision of
the certificate of incorporation, by-laws or other governing instruments of the
Company or any of its Controlled Entities or any applicable law would, directly
or indirectly, restrict or impair the ability of Holdings or the Purchaser to
vote, or otherwise to exercise the rights of a stockholder with respect to,
shares of the Company and its Controlled Entities that may be beneficially owned
by Holdings or the Purchaser.
5.22 1998 Financial Statements. The audited consolidated balance sheet of
the Company and its consolidated Controlled Entities as at December 31, 1998 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the fiscal year then ended, including the notes thereto, copies of
which are included in Section 5.22 of the Company Disclosure Statement, present
fairly in all material respects the consolidated financial condition of the
Company and its Controlled Entities as at such date and the consolidated results
of their operations for the fiscal year then ended, have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied consistently throughout the periods involved, and have been audited by
Arthur Andersen LLP (whose report thereon is attached thereto). None of the
Company and the Controlled Entities has any direct or indirect indebtedness,
liability, claim or obligation, accrued, absolute, contingent or otherwise
("Liabilities"), other than (i) Liabilities fully reflected on the
aforementioned audited financial statements, (ii) Liabilities incurred since
December 31, 1998 in the ordinary course of business consistent with past
practice and with the provisions hereof and (iii) Liabilities specifically
disclosed in the Company Disclosure Statement.
5.23 Year 2000 Compliance. With respect to the Company's and each of its
Controlled Entities' hospital-based systems, all computer hardware, software,
databases, systems and other computer equipment (collectively, "Software") used
by the Company or its Controlled Entities can be used prior to, during and after
the calendar year 2000 A.D., and will operate during each such time period,
either on a stand-alone basis or by interacting or interoperating with
third-party Software, without error relating to the processing, calculating,
comparing, sequencing or other use of date data.
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ARTICLE VI
COVENANTS
6.1 Interim Operations.
(a) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the time when persons
nominated by Holdings or Purchaser constitute a majority of the Board of
Directors of the Company, except as set forth in the Company Disclosure
Statement, unless Holdings has consented in writing thereto (which consent shall
not be unreasonably withheld), each of the Company and its Controlled Entities
shall:
(i) conduct its business and operations according to their usual,
regular and ordinary course consistent with past practice;
(ii) to the extent consistent with its business, use commercially
reasonable efforts to preserve intact its business organization and
goodwill, keep available the services of its officers and employees and
maintain satisfactory relationships with those persons having business
relationships with it;
(iii) not amend its certificate of incorporation or by-laws or
comparable governing instruments;
(iv) promptly notify Holdings of any Material Adverse Effect on the
Company, any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may
be contemplated), the material breach by the Company of any representation
or warranty contained herein or the occurrence or non-occurrence of any
material event the occurrence or non-occurrence of which would be likely to
cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect, any failure of the Company to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder or any notice or
other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement where the failure to obtain such third
party's consent would have a Material Adverse Effect on the Company;
(v) promptly deliver to Holdings true and complete copies of any
report, statement or schedule filed with the Commission subsequent to the
date of this Agreement;
(vi) not (A) except pursuant to the exercise of options, warrants,
conversion rights existing on the date hereof and disclosed pursuant to
this Agreement, issue any shares of its capital stock, effect any stock
split, or reclassify, combine, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, its capital stock or otherwise change its
capitalization as it existed on the date hereof; (B) grant, confer or award
any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock; (C) increase any
compensation or fringe benefits or enter into or amend any employment
agreement with any of its present or future officers, directors or
employees, except for normal increases of salaries or wages of employees of
the Company or its Controlled Entities who are not directors or officers of
the Company in the ordinary course of business and consistent with past
practice; (D) grant any severance or termination package to any employee or
consultant not currently required to be paid under existing severance plans
to, or enter into any employment, consulting or severance agreement or
arrangement with, any present or former director, officer or other employee
of the Company or any of its Controlled Entities; (E) adopt any new
employee benefit plan (including any stock option, stock benefit or stock
purchase plan) or amend any existing employee benefit plan in any material
respect, except for changes which are less favorable to participants in
such plans; or (F) establish, adopt, enter into or amend or terminate any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any present or former directors,
officers or employees or the Company or any of its Controlled Entities.
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(vii) not (A) declare, set aside, make or pay any dividend or make any
other distribution or payment payable in cash, stock, property or otherwise
with respect to any shares of its capital stock or other ownership
interests; or (B) directly or indirectly, redeem, purchase or otherwise
acquire any shares of its capital stock, or make any commitment for any
such action; other than the purchase prior to the Closing Date for cash of
shares of Company Common Stock subject to stock price guarantees disclosed
in Section 5.2(c)(iii) of the Company Disclosure Statement at prices per
share not in excess of the applicable guarantee price disclosed in said
Section 5.2(c)(iii);
(viii) not enter into any material agreement or transaction, or agree
to enter into any material agreement or transaction, outside the ordinary
course of business, including, without limitation, any transaction
involving any merger, consolidation, joint venture, license agreement,
partial or complete liquidation or dissolution, reorganization,
recapitalization, restructuring, or a purchase, sale, lease or other
acquisition or disposition of any assets or capital stock; other than the
purchase prior to the Closing Date for cash of shares of Company Common
Stock subject to stock price guarantees disclosed in Section 5.2(c)(iii) of
the Company Disclosure Statement at prices per share not in excess of the
applicable guarantee price disclosed in said Section 5.2(c)(iii);
(ix) not incur any indebtedness for borrowed money or assume, endorse,
guarantee or otherwise become responsible for any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any debt
securities of others, in any such case other than in the ordinary course of
its business; provided that the Company may incur indebtedness pursuant to
its current debt facilities with NationsBank, N.A. that is prepayable
without penalty at or prior to the Effective Time in order to finance the
purchase of shares of Company Common Stock subject to stock price
guarantees disclosed in Section 4.2(c)(iii) of the Company Disclosure
Statement;
(x) not make any loans, advances or capital contributions to, or
investments in, any other person other than in the ordinary course of
business;
(xi) not make or commit to make any capital expenditures in excess of
$250,000 individually or $2,500,000 in the aggregate;
(xii) not voluntarily elect to alter the manner of keeping its books,
accounts or records, or change in any manner the accounting practices or
principles therein reflected;
(xiii) not to issue, deliver, sell, lease, sell and leaseback, pledge,
dispose of or encumber, or authorize or commit to the issuance, delivery,
sale, lease, sale/leaseback, pledge, disposition or encumbrance of material
properties or assets of the Company or any of its Controlled Entities,
except liens for taxes not currently due and liens granted to incur the
indebtedness contemplated by Section 6.1(a)(ix) hereof;
(xiv) use its commercially reasonable efforts to maintain insurance on
its tangible assets and its businesses in such amounts and against such
risks and losses as are currently in effect;
(xv) not to (A) make or change any Tax election or method of
accounting with respect to Taxes, (B) file any amended Tax Return or (C)
settle or compromise any examination or proceeding with respect to any
material Tax liability;
(xvi) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), except for the payment, discharge or satisfaction of
liabilities or obligations in the ordinary course of business consistent
with past practice, or waive, release, grant, or transfer any rights of
value; other than the purchase prior to the Closing Date for cash of shares
of Company Common Stock subject to stock price guarantees disclosed in
Section 5.2(c)(iii) of the Company Disclosure Statement at prices per share
not in excess of the applicable guarantee price disclosed in said Section
5.2(c)(iii);
(xvii) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement), other than settlements involving
amounts payable by the Company and the Controlled Entities that are not in
excess of (x) amounts reserved for in respect of litigation in the most
recent
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consolidated financial statements of the Company included in the Company
Reports or (y) amounts fully recoverable from insurers of the Company and
the Controlled Entities or (z) amounts applied against self-insured
retention amounts or deductibles (provided such settlements do not involve
any material non-monetary obligations on the part of the Company);
(xviii) change the composition, fill any vacancies or increase the
size of the Company's Board of Directors; or
(xix) amend or modify in any material respect or terminate any
existing intellectual property license, execute any new intellectual
property license, sell, license or otherwise dispose of, in whole or in
part, any Company intellectual property, and/or subject any Company
intellectual property to any lien or other encumbrance; or
(xx) not agree, or commit to agree, to take or fail to take any action
not permitted to be taken or not taken pursuant to this Section 6.1(a).
(b) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the time when persons
nominated by Holdings or Purchaser constitute a majority of the Board of
Directors of the Company, except as set forth in the Purchaser Disclosure
Statement, unless the Company has consented in writing thereto, each of Holdings
and the Purchaser shall:
(i) promptly deliver to the Company true and correct copies of any
report, statement or schedule filed by Holdings or the Purchaser with the
Commission subsequent to the date of this Agreement;
(ii) promptly notify the Company of any Material Adverse Effect on
Holdings, any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may
be contemplated), or the material breach by Holdings or the Purchaser of
any representation or warranty contained herein.
6.2 Stockholders Meeting. (a) The Company, acting through its Board of
Directors, shall, if required in accordance with applicable law and the
Company's Certificate of Incorporation and By-Laws and in consultation with
Holdings, (i) duly call, give notice of, convene and hold a meeting of its
stockholders as soon as practicable following the purchase of Shares pursuant to
the Offer for the purpose of adopting this Agreement (the "Stockholders
Meeting") and (ii) (A) except to the extent modified in accordance with this
Section 6.2, include in the Proxy Statement the unanimous recommendation of the
Board of Directors that the stockholders of the Company vote in favor of the
adoption of this Agreement and include the written opinions of the Financial
Advisors that the consideration to be received by the stockholders of the
Company (other than Holdings and its affiliates) pursuant to the Offer and the
Merger is fair to such stockholders from a financial point of view and (B) use
its reasonable best efforts to obtain the Requisite Stockholder Approval. The
Board of Directors of the Company shall not withdraw, amend or modify in a
manner adverse to Holdings or the Purchaser such recommendation (or announce
publicly its intention to do so) provided that the Board of Directors shall be
permitted to withdraw, amend or modify its recommendation (or publicly announce
its intention to do so) in a manner adverse to Holdings or the Purchaser if: (1)
the Company has complied with Section 6.10, (2) a Superior Proposal (as defined
in Section 6.10) shall have been proposed by any person other than Holdings or
the Purchaser and such proposal is pending at the time of such action; (3) the
Board of Directors shall have concluded in good faith, after consultation with
its outside legal counsel, that the Board of Directors is required to withdraw,
amend or modify such recommendation in order to comply with its fiduciary duties
to the stockholders of the Company under applicable law; and (4) the Company
shall have notified Holdings of such Superior Proposal at least two business
days in advance of such action. At the Stockholders Meeting, Parent and
Purchaser shall cause all Shares then beneficially owned by them and their
subsidiaries to be voted in favor of the adoption of this Agreement.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90% of the outstanding Shares, the Company and Holdings agree,
subject to Article VII, to take all necessary and appropriate action to cause
the Merger to become effective as soon as reasonably practicable after such
acquisition, without a meeting of the Company's stockholders, in accordance with
Section 253 of the DGCL.
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6.3 Proxy Statement, Etc. If required by applicable law, as soon as
practicable following Holding's request, the Company shall file with the
Commission under the Exchange Act and the rules and regulations promulgated
thereunder, and use its reasonable good faith efforts to have cleared by the
Commission and mailed to the Company's stockholders, the Proxy Statement with
respect to the Stockholders Meeting. Holdings, Purchaser and the Company will
cooperate with each other in the preparation of the Proxy Statement. Without
limiting the generality of the foregoing, each of Holdings and Purchaser will
furnish to the Company the information relating to it required by the Exchange
Act and the rules and regulations promulgated thereunder to be set forth in the
Proxy Statement and the Company will promptly notify the Purchaser of the
receipt of any comments from the Commission or of any request by the Commission
for any amendment to the Proxy Statement or for additional information, and the
Company will permit Holdings to review and comment upon all filings by the
Company with the Commission, including the Proxy Statement and the Schedule
14D-9, and any amendments thereto, and all mailings to the Company's
stockholders in connection with the Offer and the Merger, including the Proxy
Statement and the Schedule 14D-9, shall be subject to the prior review and
comment of Holdings. The Company agrees to use its best efforts, after
consultation with the other parties hereto, to respond promptly to any comments
made by the Commission with respect to the Proxy Statement or the Schedule
14D-9, and any preliminary version thereto or amendment thereof, filed by it,
and to cause the Proxy Statement to be mailed to the Company's stockholders at
the earliest practicable time.
6.4 Company Board Representation; Section 14(f). (a) Promptly upon the
purchase by Purchaser of Shares pursuant to the Offer, and from time to time
thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board of Directors of the
Company as shall give Purchaser representation on the Board of Directors equal
to the product of the total number of directors on such Board (giving effect to
the directors elected pursuant to this sentence) multiplied by the percentage
that the aggregate number of Shares beneficially owned by Purchaser or any
affiliate of Purchaser bears to the total number of Shares then outstanding, and
the Company shall, at such time, promptly take all action necessary to cause
Purchaser's designees to be so elected, including either increasing the size of
the Board of Directors or securing the resignations of incumbent directors or
both. The Company will use its reasonable best efforts to cause persons
designated by Purchaser to constitute the same percentage as is on the Board of
(i) each committee of the Board, (ii) each board of directors of each Controlled
Entity of the Company and (iii) each committee of each such board, in each case
only to the extent permitted by law. Until Purchaser acquires a majority of the
outstanding Shares on a fully diluted basis, the Company shall use its
reasonable best efforts to ensure that all the members of the Board and such
boards and committees as of the date hereof who are not employees of the Company
shall remain members of the Board and such boards and committees.
(b) The Company's obligations to appoint designees to its Board of
Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions required
pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations
under this Section 6.4 and shall include in the Schedule 14D-9 or a separate
Rule 14f-1 information statement provided to stockholders such information with
respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 6.4.
Holdings or Purchaser will promptly supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by Section 14(f) and Rule
14f-1.
(c) Following the election or appointment of Purchaser's designees pursuant
to this Section 6.4 and prior to the Effective Time, in addition to any vote of
the Board of Directors required by law or the Company's Certificate of
Incorporation or By-laws, any amendment of this Agreement or the Certificate of
Incorporation or By-Laws of the Company, any termination of this Agreement by
the Company, any extension by the Company of the time for the performance of any
of the obligations or other acts of Holdings or Purchaser or waiver of any of
the Company's rights hereunder, will require the concurrence of a majority of
the directors of the Company then in office who are neither designated by
Holdings or Purchaser nor are employees of the Company or any of its Controlled
Entities (the "Disinterested Directors"). Notwithstanding Section 6.4(a) hereof,
the number of Disinterested Directors shall be not less than two; provided,
however, that, in such
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event, if the number of Disinterested Directors shall be reduced below two for
any reason, the remaining Disinterested Director shall be entitled to designate
a person to fill the vacancy, and such person shall be deemed to be a
Disinterested Director hereunder. If no Disinterested Director remains, the
other directors who were directors prior to the date hereof shall designate two
persons to fill such vacancies who shall not be employees of any of the Company
and its Controlled Entities or employees, stockholders or affiliates of Holdings
or Purchaser, and such persons shall be deemed to be Disinterested Directors
hereunder.
6.5 Inspection of Records. From the date hereof to the Effective Time,
the Company shall and shall cause its Controlled Entities, and their respective
directors, employees, auditors, counsel, financial advisors and other agents, to
(a) allow all designated officers, attorneys, accountants and other
representatives of Holdings and the Purchaser, including potential financial
sources, reasonable access at all reasonable times to its and its Controlled
Entities' officers, agents, employees, offices, records, files, correspondence,
audits and properties, as well as to all information relating to its and its
Controlled Entities' commitments, contracts, titles and financial position, or
otherwise pertaining to the business and affairs of the Company and its
Controlled Entities; (b) furnish to Holdings and the Purchaser and its
aforementioned representatives such financial, operating and other data and
other information as such persons may reasonably request; and (c) instruct the
employees, counsel, auditors and financial advisors and other agents of the
Company and its Controlled Entities to cooperate reasonably with Holdings and
the Purchaser and their investigation of the business of the Company and its
Controlled Entities. From the date hereof to the time when the Purchaser
purchases Shares pursuant to the Offer, Holdings and the Purchaser shall (a)
furnish to the Company, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such persons may reasonably request, and (b) instruct the
officers, counsel and financial advisors of Holdings and the Purchaser to
cooperate reasonably with the Company in its investigation of the business of
Holdings and the Purchaser or its subsidiaries. All information disclosed by the
Company to Holdings and the Purchaser and their representatives or by Holdings
or the Purchaser to the Company and its representatives shall be subject to the
terms of that certain Confidentiality Agreement (the "Confidentiality
Agreement") dated as of December 1, 1998 between Vestar Capital Partners III,
L.P. and the Company.
6.6 Publicity. Neither party hereto shall make any press release or
public announcement with respect to this Agreement, the Merger, the Offer or the
transactions contemplated hereby without the prior written consent of the other
party hereto (which consent shall not be unreasonably withheld); provided,
however, that each party hereto may make any disclosure or announcement which
such party, in the opinion of its outside legal counsel, is obligated to make
pursuant to applicable law or regulation of any national securities exchange, in
which case, the party desiring to make the disclosure shall consult with the
other party hereto prior to making such disclosure or announcement.
6.7 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use its reasonable best efforts to take, or cause to be
taken, all action, and to do or cause to be done, and to assist and cooperate
with the parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement and the Stockholder Documents,
including but not limited to (i) cooperation in the preparation and filing of
the Proxy Statement, the Schedule 14D-9 the Schedule 13E-3, the Schedule 13D and
the Offer Documents, any required filings under the HSR Act and any amendments
to any thereof, (ii) determining whether any filings are required to be made or
consents, approvals, waivers, licenses, permits or authorizations are required
to be obtained (or, which if not obtained, would result in an event of default,
termination or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any governmental
entities or third parties, including parties to leases, loan agreements or other
debt instruments, in connection with the transactions contemplated by this
Agreement, including the Offer and the Merger, and (iii) promptly making any
such filings, furnishing information required in connection therewith and timely
seeking to obtain any such consents, approvals, permits or authorizations.
(b) The Company shall make, subject to the condition that the transactions
contemplated herein actually occur, any undertakings required in order to comply
with the antitrust requirements or laws of any
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governmental entity, including the HSR Act, in connection with the transactions
contemplated by this Agreement; provided that no such undertaking shall be
agreed to or made unless reasonably acceptable to Holdings.
(c) The Company shall use its commercially reasonable best efforts to
obtain all consents, approvals, agreements, extensions or other waivers of
rights necessary to ensure that all Leases and other Material Contracts remain
in full force and effect for the benefit of the Company after the Effective Time
on substantially the same terms and conditions as in effect on the date hereof
(without any material increase in amounts payable by the Company thereunder).
(d) As soon as practicable after the date hereof and, in any event, prior
to the purchase of Shares pursuant to the Offer, the Company shall file with the
Internal Revenue Service, prior to the receipt by any of the Company and its
Controlled Entities of any notice of examination by the Internal Revenue
Service, a duly executed and acknowledged Form 3115 in form and substance
satisfactory to Holdings requesting permission for the Company and each of the
entities with which the Company files a consolidated Federal income tax return
to change the method of accounting for taxable gross revenues to the non-accrual
experience method as defined in Internal Revenue Code Section 448(d)(5). Any
additional or subsequent Internal Revenue Code Section 481 adjustments that may
result from a change in the method of accounting for the Company or any of its
Controlled Entities which relate to a change in the accounting of taxable gross
revenues to the non-accrual experience method, as defined in Internal Revenue
Code Section 448(d)(5), when combined with the Internal Revenue Code Section 481
adjustment reflected on the Form 3115, shall not exceed $4 million.
6.8 Employee Benefit Plans. The Purchaser covenants and agrees that it
will maintain benefit plans substantially comparable in the aggregate to the
benefit plans in place on the date hereof and disclosed in Section 5.12 of the
Company Disclosure Statement for a period of at least 1 year following the
Effective Time. For purposes of satisfying the terms and conditions of such
plans, the Purchaser shall give full credit for eligibility and vesting (but not
benefit accrual) for each participant's period of service with the Company prior
to the Effective Time. To the extent the Purchaser's benefit plans provide
medical or dental welfare benefits after the Effective Time, the Purchaser shall
cause all pre-existing condition exclusions and actively at work requirements to
be waived to the extent such exclusions and work requirements have been
satisfied under medical and dental plans in place on the date hereof and the
Purchaser shall provide that any expenses incurred on or before the Effective
Time shall be taken into account under the Purchaser's benefit plans for
purposes of satisfying the applicable deductible, coinsurance and maximum
out-of-pocket provisions for such employees and their covered dependents.
6.9 Indemnification of Directors and Officers of the Company.
(a) For a period of six (6) years after the Effective Time, the Purchaser
agrees to indemnify and hold harmless, and to cause the Surviving Corporation to
honor its separate indemnification to, each person who is an officer or director
of the Company or its Controlled Entities on the date of this Agreement (an
"Indemnified Person") from and against all damages, liabilities, judgments and
claims (and related expenses including, but not limited to, attorney's fees and
amounts paid in settlement) based upon or arising from his or her capacity as an
officer or director of the Company or its Controlled Entities prior to the
Effective Time, to the same extent he or she would have been indemnified under
the Certificate of Incorporation or By-laws of the Company or the applicable
Controlled Entity as such documents were in effect on the date of this Agreement
and to the extent permitted under applicable law.
(b) For a period of six (6) years after the Effective Time, the Surviving
Corporation shall maintain in full force and effect (i) the Company's directors'
and officers' liability insurance policy in existence on February 19, 1999 or
(ii) a substantially similar policy maintained by the Surviving Corporation
providing for coverages of not less than $5,000,000 for acts and/or omissions
alleged to have occurred prior to the Effective Time; provided that (x) the
Surviving Corporation shall not be required to spend an aggregate amount for
such coverage in excess of $380,000; and provided, further, that if the
aggregate premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated to obtain a policy with the best coverage
available, in the reasonable judgement of the Board of Directors of the
Surviving Corporation, for an
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aggregate cost not exceeding such amount, and (y) such policies may in the sole
discretion of the Surviving Corporation be one or more "tail" policies for all
or any portion of the full six (6) year period.
(c) The Purchaser acknowledges that the Surviving Corporation will assume
the Company's obligations under the indemnification agreements listed on Section
5.7(c) of the Company Disclosure Statement.
(d) The rights granted to the Indemnified Persons hereby shall be
contractual rights inuring to the benefit of all Indemnified Persons and shall
survive this Agreement and any merger, consolidation or reorganization of the
Purchaser.
6.10 No Solicitations. Neither the Company nor any of its Controlled
Entities shall (whether directly or indirectly through advisors, agents or other
intermediaries), nor shall the Company or any of its Controlled Entities
authorize or permit any of its or their officers, directors, agents,
representatives, advisors or subsidiaries to, (a) solicit, initiate, encourage
(including by way of furnishing information) or take any action knowingly to
facilitate the submission of any inquiries, proposals or offers (whether or not
in writing) from any person (other than Holdings and its affiliates) relating
to, other than the transactions contemplated by this Agreement, (i) any
acquisition or purchase of 5% or more of the consolidated assets of the Company
and its Controlled Entities or of any class of equity securities of the Company
or any of its Controlled Entities, (ii) any tender offer (including a self
tender offer) or exchange offer that if consummated would result in any person
beneficially owning any class of equity securities of the Company or any of its
Controlled Entities, (iii) any merger, consolidation, business combination, sale
of substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its Controlled Entities
whose assets, individually or in the aggregate, constitute 5% or more of the
consolidated assets of the Company, or (iv) any other transaction the
consummation of which would or would reasonably be expected to impede, interfere
with, prevent or materially delay the Merger or which would or would reasonably
be expected to materially dilute the benefits to Holdings or the Purchaser of
the transactions contemplated by this Agreement (collectively, "Transaction
Proposals"), or agree to or endorse any Transaction Proposal, or (b) enter into
or participate in any discussions or negotiations regarding any of the
foregoing, or furnish to any other person any information with respect to its
business, properties or assets in connection with the foregoing, or otherwise
cooperate in any way with, or knowingly assist or participate in, facilitate or
encourage, any effort or attempt by any other person (other than any of Holdings
and its affiliates) to do or seek any of the foregoing; provided, however, that
the foregoing shall not prohibit the Company, prior to the receipt of the
Requisite Stockholder Approval of the transactions contemplated hereby, (A) from
complying with Rule 14e-2 and Rule 14d-9 under the Exchange Act with regard to a
bona fide tender offer or exchange offer or (B) from participating in
negotiations or discussions with or furnishing information to any person in
connection with a Transaction Proposal not solicited after the date hereof which
is submitted in writing by such person to the Board of Directors of the Company
after the date of this Agreement; provided, however, that prior to participating
in any such discussions or negotiations or furnishing any information, the
Company receives from such person an executed confidentiality agreement on terms
not less favorable to the Company than the Confidentiality Agreement; and
provided, further, that the Board of Directors of the Company shall have
concluded in good faith, after consultation with its outside financial advisors,
that such Transaction Proposal is reasonably likely to constitute a Superior
Proposal (as defined below) and, after consultation with its outside legal
counsel, that participating in such negotiations or discussions or furnishing
such information is required in order to comply with its fiduciary duties to the
stockholders of the Company under applicable law; and provided, further, that
the Board of Directors of the Company shall not (unless it is prohibited from
doing so by the terms of the Transaction Proposal), take any of the foregoing
actions prior to two business days after it provides Holdings with prompt (but
in no event later than 24 hours after the occurrence or commencement of such
action) written notice thereof. If the Board of Directors of the Company
receives a Transaction Proposal, then the Company shall, to the extent not
prohibited in good faith by the terms of such Transaction Proposal, promptly
inform Holdings of the terms and conditions of such proposal and the identity of
the person making it. The Company will immediately cease and cause its advisors,
agents and other intermediaries to cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and shall use its reasonable best efforts to cause any
such parties in possession of confidential information about the Company that
was furnished by or on behalf of the Company to return or destroy all
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such information in the possession of any such party or in the possession of any
agent or advisor of any such party. The Company agrees not to release any third
party from, or waive any provisions of, any confidentiality or standstill
agreement to which the Company is a party. "Superior Proposal" means any of the
transactions described in clause (i), (ii) or (iii) of the definition of
Transaction Proposal (with all of the percentages included in the definition of
such term raised to 51% for purposes of this definition) with respect to which
the Board of Directors of the Company shall have concluded in good faith, after
consultation with its outside legal counsel and financial advisors, is
reasonably likely to be completed, taking into account all legal, financial,
regulatory and other aspects of the Transaction Proposal, including the status
of the financing therefor, and the person making the proposal, and would, if
consummated, result in a transaction more favorable to the Company's
stockholders from a financial point of view than the transactions contemplated
by this Agreement, including the Merger.
6.11 Disposition of Litigation. The Company, Holdings and the Purchaser
shall participate jointly in the defense of any stockholder litigation against
the Company, Holdings or the Purchaser, as applicable, and their respective
affiliates, and the directors, officers, employees, representatives and agents
of the foregoing, relating to the transactions contemplated by this Agreement.
6.12 Financing-Related Cooperation. The Company agrees to provide, and
will cause the Controlled Entities and its and their respective officers,
employees and advisors to provide, all cooperation reasonably necessary in
connection with the arrangement of any financing to be consummated
contemporaneously with or at or after the Closing in respect of the transactions
contemplated by this Agreement, including participation in meetings, due
diligence sessions, road shows, the preparation of offering memoranda, private
placement memoranda, prospectuses and similar documents, the execution and
delivery of any commitment letters, underwriting or placement agreements, pledge
and security documents, other definitive financing documents, or other requested
certificates or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, comfort letters of
accountants and legal opinions as may be reasonably requested by Holdings and
taking such other actions as are reasonably required to be taken by the Company
in the Commitment Letters. In addition, in conjunction with the obtaining of any
such financing, the Company agrees, at the reasonable request of Holdings, to
call for prepayment or redemption, or to prepay, redeem and/or renegotiate, as
the case may be, any then existing indebtedness of the Company and the
Controlled Entities; provided that no such prepayment or redemption shall
themselves actually be made until contemporaneously with or after the Effective
Time.
6.13 Stop Transfer Order. The Company will instruct the Company's
transfer agent that, except as provided in Section 4.4 of each of the
Subscription and Tender Agreements, there is a stop transfer order with respect
to all of the Shares and that the Subscription and Tender Agreements place
limits on the transfer of such Shares.
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of each of the following
conditions (unless waived by each of the parties hereto in accordance with the
provisions of Section 8.8 hereof):
(a) If required by the DGCL, this Agreement shall have been adopted by
the requisite vote of the Company's stockholders.
(b) The Purchaser shall have purchased Shares pursuant to the Offer.
(c) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
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(d) No preliminary or permanent injunction or other order, decree,
statute, rule or regulation shall have been entered by any federal or state
court or federal, state, local or other governmental authority which
prevents the consummation of the Merger shall have been issued and remain
in effect.
7.2 Additional Condition to the Obligations of Holdings and the Purchaser
to Effect the Merger. The obligations of Holdings and the Purchaser to effect
the Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following condition (unless waived by Holdings and the Purchaser in
accordance with the provisions of Section 8.8 hereof):
(a) Funding under the Permanent Facilities (as defined in the NationsBank
Commitment Letter), in the amounts and on the other terms and conditions
(including unused availability under the revolving credit facility) set forth in
the NationsBank Commitment Letter, shall have been received.
ARTICLE VIII
TERMINATION AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the adoption
of this Agreement by the Company's stockholders:
(a) By mutual written consent of Holdings, Purchaser and the Company;
(b) By Holdings or the Company, if any court of competent jurisdiction
or other governmental authority located or having jurisdiction within the
United States shall have issued an order, injunction, decree, judgment or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, injunction, decree,
judgment, ruling or other action is or shall have become final and
nonappealable;
(c) By Holdings, if due to an occurrence or circumstance which
resulted in a failure to satisfy any of the Offer Conditions (other than as
a result of a material breach by Holdings or Purchaser of any of its
obligations hereunder), Purchaser shall have (i) terminated the Offer or
(ii) failed to pay for Shares pursuant to the Offer on or prior to May 31,
1999 (the "Outside Date");
(d) By the Company, prior to the purchase of Shares pursuant to the
Offer, if (i) pursuant to and in compliance with Sections 1.2(b) and 6.2
hereof, the Board of Directors of the Company withdraws, modifies or amends
in a manner adverse to Holdings or the Purchaser any of its recommendations
described in Section 1.2(a)(i) hereof (or publicly announces its intention
to do so), or (ii) the Company or its Board of Directors approves a
Superior Proposal; provided, however, that (A) the Company shall have
complied with Section 6.10, (B) the Board of Directors of the Company shall
have concluded in good faith, after consultation with its outside legal
counsel and financial advisors, that such proposal is a Superior Proposal
and (C) the Board of Directors of the Company shall have concluded in good
faith, after consultation with its outside legal counsel, that approving
and entering into an agreement in connection with, and consummating, such
Superior Proposal is required in order to comply with its fiduciary duties
to the stockholders of the Company under applicable law; provided, that
this Agreement may not be terminated pursuant to this Section 8.1(d) unless
(x) concurrently with such termination, the Company pays to Holdings the
Termination Fee (as hereinafter defined) and (y) the Company shall have
provided Holdings with at least two business days advance notice of such
termination.
(e) By the Purchaser, prior to the purchase of Shares pursuant to the
Offer, if the Company or its Board of Directors shall have (i) withdrawn,
modified or amended in any respect adverse to Holdings or the Purchaser any
of its recommendations described in Section 1.2(a)(i) hereof (or publicly
announced its intention to do so), (ii) failed as promptly as reasonably
practicable to mail the Schedule 14D-9 to its stockholders or failed to
include in such Schedule 14D-9 such recommendations, (iii) approved,
recommended or entered into an agreement with respect to, or consummated,
any Transaction Proposal from a person other than Holdings or any of its
affiliates, (iv) resolved to do any of the foregoing, or (v) in response to
the commencement of any tender offer or exchange offer (other than the
Offer) for
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outstanding shares of Company Common Stock, not recommended rejection of
such tender offer or exchange offer.
(f) By the Company, prior to the purchase of Shares pursuant to the
Offer, if (i) Holdings or the Purchaser breaches any of its
representations, warranties, covenants or agreements contained in this
Agreement and such breach is reasonably likely to have a Material Adverse
Effect on Holdings and, with respect to any such breach that is reasonably
capable of being remedied, the breach is not remedied prior to the earlier
of (x) 20 days after the Company has furnished Holdings with written notice
of such breach or (y) two business days prior to the date on which the
Offer expires, or (ii) Purchaser shall have (A) terminated the Offer or (B)
failed to pay for Shares pursuant to the Offer on or prior to the Outside
Date (unless such failure is caused by or results from the breach by the
Company of any of its representations, warranties, covenants or agreements
contained in this Agreement).
(g) By Holdings, if (i) the Company breaches any of its
representations, warranties, covenants or agreements contained in this
Agreement and such breach is reasonably likely to have a Material Adverse
Effect on the Company and, with respect to any such breach that is
reasonably capable of being remedied, the breach is not remedied prior to
the earlier of (x) 20 days after Holdings has furnished the Company with
written notice of such breach or (y) two business days prior to the date on
which the Offer expires, or (ii) the Minimum Condition shall not have been
satisfied by the expiration date of the Offer as it may have been extended
pursuant hereto and on or prior to such date (A) any person (including the
Company but not including any of Holdings and its other affiliates) shall
have made a public announcement, public disclosure or other formal
communication to the Company or its stockholders with respect to a
Transaction Proposal or (B) any person (including the Company or any of its
Controlled Entities), other than Holdings or any of its affiliates, shall
have become (and remain at the time of termination) the beneficial owner of
19.9% (provided that any person who on the date hereof beneficially owns
19.9% or more of the Shares shall not have become the beneficial owner of
an additional 3% of the Shares) or more of the Shares (unless such person
shall have tendered and not withdrawn such person's Shares pursuant to the
Offer).
8.2 Termination Fees and Expenses.
(a) The Company shall (provided that neither Holdings nor the Purchaser is
then in material breach of its obligations under this Agreement) upon the
termination of this Agreement in accordance with Section 8.1(c) (if such
termination shall have occurred, in whole or in part, by reason of the failure
of any of the Offer Conditions set forth in paragraphs (a), (b), (d), (e), (f)
and (i) or the Financing Condition (unless such financing is not received due to
(i) the occurrence of a material disruption of or material adverse change in
financial, banking or capital market conditions, (ii) a competing offering,
placement or arrangement of debt securities or bank financing by or on behalf of
the Company or any Controlled Entity thereof that was undertaken by, on behalf
of (with Holdings' or Purchaser's consent), or at the direction of Holdings or
its affiliates, or (iii) a material disruption or material adverse change in the
market for new issues of high yield securities or the financial or capital
markets in general)), Section 8.1(d), Section 8.1(e), Section 8.1(f) (ii) (if
Holdings could have terminated this Agreement pursuant to Section 8.1(c) and
such termination would have occurred, in whole or in part, for any of the
reasons set forth earlier in this sentence with respect to a termination
pursuant to Section 8.1(c)) or Section 8.1(g), promptly, but in no event later
than two business days following written notice thereof, together with
reasonable supporting documentation, reimburse Holdings and the Purchaser, in an
aggregate amount of up to $3,000,000, for all reasonable out-of-pocket expenses
and fees (including fees payable to all banks, investment banking firms and
other financial institutions, and their respective agents and counsel, and all
fees of counsel, accountants, financial printers, advisors, experts and
consultants to Holdings and its affiliates), whether incurred prior to,
concurrently with or after the execution of this Agreement, in connection with
the Offer or the Merger or the consummation of any other transaction
contemplated by this Agreement or the Stockholder Documents, the financing
thereof or consents related hereto (collectively, the "Expenses"). Such payment,
together with any Termination Fee which may be paid, shall serve as full
liquidated damages in respect of such breach, and Holdings and the Purchaser
hereby waive all claims against the Company and its Controlled Entities in
respect of the breach or breaches occasioning the payment pursuant to this
Section 8.2(a). It is understood that in the event that the Purchaser is paid a
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Termination Fee (as defined in Section 8.2(b) below), to the extent not
previously paid, no amounts shall be payable as Expenses.
(b) In the event that this Agreement is terminated by the Company pursuant
to Section 8.1(d) or by the Purchaser pursuant to Section 8.1(e), the Company
shall pay to Holdings by wire transfer of immediately available funds to an
account designated by Holdings on the next business day following such
termination (or, in the case of a termination pursuant to Section 8.1(d), prior
to the effectiveness of such termination) an amount equal to $6,400,000 (the
"Termination Fee") less any amount previously paid to Holdings in respect of
Expenses.
(c) If all of the following events have occurred:
(i) a Transaction Proposal is commenced, publicly disclosed, publicly
proposed or otherwise formally communicated to the Company or its
stockholders at any time on or after the date of this Agreement but prior
to any termination of this Agreement and either (A) Holdings terminates
this Agreement pursuant to Section 8.1(c) (unless such termination shall
have occurred, in whole or in part, due to the failure of the condition set
forth in paragraph (c) of Annex A or the Financing Condition due to, in the
case of the failure of the Financing Condition, (i) the occurrence of a
material disruption of or material adverse change in financial, banking or
capital market conditions, (ii) a competing offering, placement or
arrangement of debt securities or bank financing by or on behalf of the
Company or any Controlled Entity thereof that was undertaken by or on
behalf of (with Holdings' or Purchaser's consent), or at the direction of
Holdings or any of its affiliates, or (iii) a material disruption or
material adverse change in the market for new issues of high yield
securities or the financial or capital markets in general) or (B) the
Company terminates this Agreement pursuant to Section 8.1(f)(ii) or (C)
Holdings terminates this Agreement pursuant to Section 8.1(g); and
(ii) thereafter, within 12 months of the date of such termination, the
Company enters into a definitive agreement with respect to, or consummates,
the Transaction Proposal referred to in clause (i) above or a Superior
Proposal (whether or not such Superior Proposal was commenced, publicly
disclosed, publicly proposed or otherwise communicated to the Company or
its stockholders prior to such termination);
then, the Company shall pay to Holdings, concurrently with the earlier of
the execution of such definitive agreement or the consummation of such
Transaction Proposal, an amount equal to the Termination Fee (less any
amount previously paid to Holdings in respect of Expenses).
(d) Purchaser shall (provided that the Company is not then in material
breach of any of its representations, warranties or obligations hereunder),
following the termination of this Agreement in accordance with Section 8.1(f)
(if such termination shall have occurred by reason of a material breach by
Holdings or Purchaser of any of its material obligations hereunder), promptly,
but in no event later than two business days following written notice thereof,
together with reasonable supporting documentation, reimburse the Company, in an
aggregate amount of up to $1,000,000, for all reasonable out-of-pocket expenses
and fees (including those payable to investment banking firms and other
financial institutions, and their respective agents and counsel, and all fees of
counsel, accountants, financial printers, advisors, experts and consultants to
the Company and its affiliates), whether incurred prior to, concurrently with or
after the execution of this Agreement, in connection with the Offer or the
Merger or the consummation of any other transaction contemplated hereby or by
the Stockholder Documents, the financing hereof or consents related hereto. Such
payment shall serve as full liquidated damages in respect of such breach and the
Company hereby waives, on behalf of itself and its Controlled Entities, all
claims against Holdings and its affiliates in respect of the breach or breaches
occasioning the payment pursuant to this Section 8.2(d).
(e) Except as otherwise specifically provided herein, each party shall bear
its own expenses in connection with this Agreement and the transactions
contemplated hereby; provided that all expenses of Holdings and the Purchaser
shall be paid by the Surviving Corporation at or following the Effective Time.
8.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
all obligations of the parties hereto shall terminate,
27
<PAGE> 134
except the obligations of the parties pursuant to the provisions of Sections
6.6, 8.2, 8.3 and 9.6, which obligations shall survive the termination of this
Agreement.
8.4 Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto; and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements. The
representations and warranties in this Agreement and in any instrument delivered
pursuant hereto shall expire at the Effective Time or upon the termination of
this Agreement pursuant to Article VIII, as the case may be. All agreements in
this Agreement to be fully performed prior to the Effective Time shall terminate
at the Effective Time and all other agreements shall survive the Effective Time.
Except as expressly provided otherwise in Section 8.3, all agreements in this
Agreement shall terminate upon the termination of this Agreement pursuant to
Article VIII.
9.2 Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given five (5) business days after being deposited in the United
States mail, postage prepaid, registered or certified mail. Notices delivered by
hand by facsimile, or by nationally recognized private carrier shall be deemed
given on the day following receipt; provided, however, that a notice delivered
by facsimile shall only be effective if such notice is also delivered by hand,
or deposited in the United States mail, postage prepaid, registered or certified
mail, on or before two (2) business days after its delivery by facsimile. All
notices shall be addressed as follows:
If to Holdings or the Purchaser:
c/o Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attn: James L. Elrod, Jr.
Facsimile: (212) 808-4922
With copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attn: Peter J. Gordon, Esq
Facsimile: (212) 455-2502
28
<PAGE> 135
If to the Company:
Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 400
Hollywood, FL 33021
Attn: Mitchell Eisenberg, M.D.
Chairman, President and Chief Executive Officer
and
Jay A. Martus, Esq.
Vice President and General Counsel
Facsimile: (954) 987-8359
With copies to:
Akerman, Senterfitt & Eidson P.A.
One S.E. 3rd Avenue, 28th Floor
Miami, Florida 33131
Attn: Stephen K. Roddenberry, Esq.
Facsimile: (305) 374-5095
or to such other address as any party shall specify by written notice so given.
9.3 Assignment, Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that the Purchaser may assign all
or any of its rights and obligations hereunder to any direct or indirect wholly
owned subsidiary or subsidiaries of Holdings, provided that no such assignment
shall relieve the assigning party of its obligations hereunder if such assignee
does not perform such obligations. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
9.4 Entire Agreement. This Agreement, the Stockholder Documents, the
Disclosure Statements of the Company and the Purchaser, the Exhibits and Annex
hereto and the Confidentiality Agreement constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
9.5 Amendment. This Agreement may be amended by the parties hereto at any
time prior to the Effective Time, before or after the adoption of this Agreement
by the stockholders of the Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
9.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
9.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only and shall be given no substantive or
interpretive effect whatsoever.
9.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
9.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a
29
<PAGE> 136
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
9.11 Incorporation of Exhibits. The Disclosure Statements of the Company
and the Purchaser attached hereto and referred to herein are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein.
9.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
30
<PAGE> 137
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ JAMES L. ELROD
------------------------------------
Title: President
VESTAR/CALVARY, INC.
By: /s/ JAMES L. ELROD
------------------------------------
Title: President
SHERIDAN HEALTHCARE, INC.
By: /s/ MITCHEL EISENBERG
------------------------------------
Title: President
31
<PAGE> 138
ANNEX A
OFFER CONDITIONS
The capitalized terms used in this Annex A have the meanings set forth in
the attached Agreement, except that the term "Merger Agreement" shall be deemed
to refer to the attached Agreement.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for any Shares
tendered pursuant to the Offer, and may postpone the acceptance for payment or,
subject to the restriction referred to above, payment for any Shares tendered
pursuant to the Offer, and may amend or terminate the Offer (whether or not any
Shares have theretofore been purchased or paid for) if, prior to the expiration
of the Offer, (i) a number of shares of Company Common Stock which, together
with any Shares owned by Holdings or Purchaser, or any controlled affiliate
thereof, constitutes at least a majority of the voting power (determined on a
fully-diluted basis), on the date of purchase, of all the securities of the
Company entitled to vote generally in the election of directors or in a merger
shall not have been validly tendered and not properly withdrawn prior to the
expiration of the Offer (the "Minimum Condition"), (ii)(A) Purchaser shall not
have received funding for the Offer (1) sufficient to pay for all Shares
tendered pursuant to the Offer and not validly withdrawn and to pay all fees and
expenses related to the Offer and (2) otherwise on the terms and subject to the
conditions set forth in the NationsBank Commitment Letter and (B)(1) the
Permanent Facilities (as defined in the NationsBank Commitment Letter) shall not
have been fully executed and delivered or shall not be in full force or effect
or (2) all conditions to funding under the Permanent Facilities that are
required to be, or are capable of being, satisfied prior to the purchase of the
Shares pursuant to the Offer shall not have been satisfied or (3) there is
reason to believe that any of the other conditions to funding under the
Permanent Facilities will not be satisfied prior to the termination of the
Merger Agreement or the Permanent Facilities, or (iii) at any time on or after
the date of the Merger Agreement and prior to the acceptance for payment of
Shares, any of the following conditions occurs or has occurred or Purchaser
makes a good faith determination that any of the following conditions has
occurred:
(a) there shall be pending or threatened by any governmental authority
any suit, action or proceeding, or any preliminary or permanent injunction
or order, decree, statute, rule or regulation shall have been entered by
any federal or state court or other governmental authority, or statute,
rule, regulation, legislation, interpretation, judgment or order proposed,
sought, enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to Holdings or the Company or any affiliate of Holdings or the
Company or the Offer or the Merger, (i) challenging or seeking to restrain
or prohibit or make materially more costly the making of the Offer, the
acceptance for payment of, or payment for, some of or all the Shares by
Purchaser or any of its affiliates or the consummation of any of the other
transactions contemplated by the Merger Agreement or seeking to materially
delay the Merger or obtain from Holdings or any of its affiliates material
damages; (ii) seeking to prohibit or limit the ownership or operation by
the Company or any of its Controlled Entities or Holdings or any of
Holdings' affiliates of all or any material portion of the business or
assets of the Company or any of its Controlled Entities or Holdings, or any
of its affiliates, or seeking to compel Holdings, Purchaser or any of
Holdings' affiliates to dispose of or hold separate all or any material
portion of the business or assets of the Company or any of its Controlled
Entities or Holdings or any of its affiliates; (iii) seeking to impose or
confirm limitations on the ability of Holdings or any of Holdings'
affiliates effectively to acquire or hold or to exercise full rights of
ownership of Shares, including without limitation the right to vote any
Shares on all matters properly presented to the stockholders of the
Company, including without limitation the adoption of the Merger Agreement,
or the right to vote any shares of capital stock of any subsidiary directly
or indirectly owned by the Company; or (iv) seeking to require divestiture
by Holdings or any of Holdings' affiliates of any Shares;
(b) there shall have occurred any event that has had or would be
reasonably likely to have a Material Adverse Effect on the Company;
A-1
<PAGE> 139
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) a
decline of at least 25% in either the Dow Jones Average of Industrial
Stocks or the Standard & Poor's 500 index from the date hereof, (iii) any
material adverse change or any existing or threatened condition, event or
development involving a prospective material adverse change in United
States or other material international currency exchange rates or a
suspension of, or limitation on, the markets therefor, (iv) a declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States, (v) any limitation (whether or not mandatory) by any
government or governmental, administrative or regulatory authority or
agency, domestic or foreign, on, or any other event that, in the reasonable
judgment of Purchaser, could reasonably be expected to materially adversely
affect the extension of credit by banks or other lending institutions, (vi)
a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
(except for any such event involving Serbia or Iraq) or materially
adversely affecting (or materially delaying) the consummation of the Offer
or (vii) in the case of any of the foregoing existing at the time of
commencement of the Offer, a material acceleration or worsening thereof;
(d) All material licenses, permits, consents, authorizations,
qualifications, orders and approvals of (or filings with) any governmental
authority or other third party (including, without limitation, the consents
of the Company's creditors and of South Broward Hospital District) required
to be obtained, made or received in connection with the execution, delivery
and performance of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby shall not have been
obtained, made or received in form and substance reasonably satisfactory to
Holdings.
(e) any of the representations and warranties of the Company contained
in the Merger Agreement shall not be true and correct in any material
respect, in each case as if such representations and warranties were made
at the time of such determination;
(f) the Company shall have failed to perform in any material respect
any agreement of the Company contained in the Merger Agreement that is
required to be performed by it prior to the time of such determination;
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company;
(h) any waiting period under the HSR Act applicable to the purchase of
Shares pursuant to the Offer shall not have expired or been terminated; or
(i) to the Company's knowledge, the Company or a Controlled Entity of
the Company is under investigation for any violation of the "Stark" laws,
anti-kickback laws or the laws relating to Medicare, Medicaid, Champus or
any rules or regulations related thereto:
which, in the reasonable judgment of Purchaser with respect to each and
every matter referred to above and regardless of the circumstances
(including any action or inaction by Purchaser or any of its affiliates
other than a breach of the Merger Agreement) giving rise to any such
condition, makes it inadvisable to proceed with the Offer or with such
acceptance for payment of or payment for Shares or to proceed with the
Merger.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition or may be waived by Purchaser in whole or in part at any time and from
time to time in its sole discretion (subject to the terms of the Merger
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
A-2
<PAGE> 140
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each stockholder
of the Company or his, her or its broker, dealer, commercial bank, trust company
or other nominee to the Depositary as follows:
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Delivery:
40 Wall Street (for Eligible Institutions 40 Wall Street
New York, New York 10005 only) New York, New York 10005
(718) 236-4588
For Information Telephone:
(212) 936-5100
</TABLE>
Any questions and requests for assistance may be directed to the
Information Agent at its telephone number and address listed below. Additional
copies of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from the Information Agent. You may
also contact your broker, dealer, commercial bank or trust company for
assistance concerning the Offer.
The Information Agent for the Offer is:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Bankers and Brokers Call Collect: (212) 750-5833
All Others Call Toll Free: (888) 750-5834
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
AND CLASS A COMMON STOCK
OF
SHERIDAN HEALTHCARE, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 31, 1999
BY
VESTAR/SHERIDAN, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN HOLDINGS, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN INVESTORS, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Delivery:
(for Eligible Institutions only)
40 Wall Street 40 Wall Street
New York, New York 10005 (718) 236-4588 New York, New York 10005
</TABLE>
For Information Telephone:
(212) 936-5100
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders, either if
certificates for Shares (as defined below) are to be forwarded herewith or,
unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if
tenders of Shares are to be made by book-entry transfer into the account of
American Stock Transfer & Trust Company, as Depositary (the "Depositary"), at
The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Tender Offer -- Section 3" of the
Offer to Purchase. Stockholders who tender Shares by book-entry transfer are
referred to herein as "Book-Entry Stockholders."
Holders of Shares whose certificates for such Shares (the "Share
Certificates") are not immediately available or who cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date (as defined in "The Tender Offer -- Section 1" of the Offer to
Purchase), or who cannot complete the procedure for book-entry transfer on a
timely basis, must tender their Shares according to the guaranteed delivery
procedure set forth in "The Tender Offer -- Section 3" of the Offer to Purchase.
See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- - ---------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) AND SHARES
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) TENDERED (ATTACH ADDITIONAL SIGNED LIST
APPEAR(S) ON CERTIFICATE(S)) IF NECESSARY)
- - ---------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
SHARES OF SHARES NUMBER
CERTIFICATE REPRESENTED BY OF SHARES
NUMBER(S)* CERTIFICATE(S) TENDERED**
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
TOTAL SHARES:
- - ---------------------------------------------------------------------------------------------------------------------------
* NEED NOT BE COMPLETED BY BOOK-ENTRY STOCKHOLDERS.
** UNLESS OTHERWISE INDICATED, ALL SHARES REPRESENTED BY CERTIFICATES DELIVERED TO THE DEPOSITARY WILL BE DEEMED TO HAVE
BEEN TENDERED. SEE INSTRUCTION 4.
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
[ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER
FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution
----------------------------------------
Check box of Book-Entry Transfer Facility:
[ ] The Depository Trust Company
Account Number
--------------------
Transaction Code Number
-------------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
--------------------------------------------
Window Ticket Number (if any):
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------
Name of Institution that Guaranteed Delivery:
-----------------------------
If delivered by Book-Entry Transfer, check box of Book-Entry Transfer
Facility:
[ ] The Depository Trust Company
Account Number
------------------
Transaction Code Number
--------------------
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to Vestar/Sheridan, Inc., a Delaware
corporation formerly known as Vestar/Calvary, Inc. ("Purchaser") and a wholly
owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware corporation
formerly known as Vestar/Calvary Holdings, Inc. ("Parent") and a wholly owned
subsidiary of Vestar/ Sheridan Investors, LLC, a Delaware limited liability
company formerly known as Vestar/Calvary Investors, LLC, the above-described
shares of Common Stock, par value $0.01 per share ("Common Stock"), and Class A
Common Stock, par value $0.01 per share ("Class A Common Stock" and, together
with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., a Delaware
corporation (the "Company"), at a purchase price of $9.25 per Share, net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated March 31, 1999 (the "Offer
to Purchase") and in this Letter of Transmittal (which, as amended from time to
time, together constitute the "Offer"). The undersigned understands that
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer, receipt of which is hereby
acknowledged.
Subject to, and effective upon, acceptance for payment for the Shares
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all of the Shares that are being tendered
hereby and any and all dividends, distributions (including additional Shares) or
rights declared, paid or issued with respect to the tendered Shares on or after
the date hereof and payable or distributable to the undersigned on a date prior
to the transfer to the name of Purchaser or nominee or transferee of Purchaser
on the Company's stock transfer records of the Shares tendered herewith
(collectively, a "Distribution"), and appoints the Depositary the true and
lawful agent and attorney-in-fact of the undersigned with respect to such Shares
(and any Distribution) with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest) to (a) deliver
such Share Certificates (and any Distribution) or transfer ownership of such
Shares (and any Distribution) on the account books maintained by the Book-Entry
Transfer Facility, together in either case with appropriate evidences of
transfer, to the Depositary for the account of Purchaser, (b) present such
Shares (and any Distribution) for transfer on the books of the Company and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Shares (and any Distribution), all in accordance with the terms and
subject to the conditions of the Offer.
The undersigned irrevocably appoints designees of Purchaser as such
stockholder's attorneys-in-fact and proxies, with full power of substitution, to
the full extent of such stockholder's rights with respect to the Shares tendered
by such stockholder and accepted for payment by Purchaser (and with respect to
any and all other Shares or other securities issued or issuable in respect of
such Shares on or after the date hereof). All such powers of attorney and
proxies shall be considered irrevocable and coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the extent
that, Purchaser accepts such Shares for payment. Upon such acceptance for
payment, all prior powers of attorney and proxies given by such stockholder with
respect to such Shares (and such other Shares and securities) will be revoked
without further action, and no subsequent powers of attorney and proxies may be
given nor any subsequent written consents executed (and, if given or executed,
will not be deemed effective). The designees of Purchaser will, with respect to
the Shares for which such appointment is effective, be empowered to exercise all
voting and other rights of such stockholder as they in their sole discretion may
deem proper at any annual or special meeting of the Company's stockholders or
any adjournment or postponement thereof, by written consent in lieu of any such
meeting or otherwise. Purchaser reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon Purchaser's payment for
such Shares, Purchaser must be able to exercise full voting rights with respect
to such Shares and other securities, including voting at any meeting of
stockholders.
The undersigned hereby represents and warrants that (a) the undersigned has
full power and authority to tender, sell, assign and transfer the Shares (and
any Distribution) tendered hereby and (b) when the Shares are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title to the Shares (and any Distribution), free and clear of all liens,
restrictions, charges and encumbrances, and the same will not be subject to any
adverse claim. The undersigned, upon request, will execute and deliver any
additional documents deemed by the Depositary or Purchaser to be necessary or
desirable to complete the sale, assignment and transfer of the Shares tendered
hereby (and any Distribution). In addition, the undersigned shall promptly remit
and transfer to the Depositary for the account of Purchaser any and all
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer; and pending such remittance or
appropriate assurance thereof, Purchaser will be, subject to applicable law,
entitled to all rights and privileges as owner of any such Distribution and may
withhold the entire purchase price or deduct from the purchase price the amount
or value thereof, as determined by Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall not be
affected by and shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned.
<PAGE> 4
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable except
that they may be withdrawn after May 29, 1999, unless theretofore accepted for
payment as provided in the Offer to Purchase. See "The Tender Offer -- Section
4" of the Offer to Purchase.
The undersigned understands that tenders of Shares pursuant to any of the
procedures described in "The Tender Offer -- Section 3" of the Offer to Purchase
and in the instructions hereto will constitute a binding agreement between the
undersigned and Purchaser upon the terms and subject to the conditions set forth
in the Offer, including the undersigned's representation that the undersigned
owns the Shares being tendered.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or issue or return any
certificate(s) for Shares not tendered or not accepted for payment in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," please mail the check for the purchase price and/or any
certificate(s) for Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." In the event that
both the Special Delivery Instructions and the Special Payment Instructions are
completed, please issue the check for the purchase price and/or any
certificate(s) for Shares not tendered or accepted for payment in the name of,
and deliver such check and/or such certificates to, the person or persons so
indicated. The undersigned recognizes that Purchaser has no obligation, pursuant
to the Special Payment Instructions, to transfer any Shares from the name(s) of
the registered holder(s) thereof if Purchaser does not accept for payment any of
the Shares so tendered.
<PAGE> 5
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment are to be issued in the name of someone other than
the undersigned.
Issue [ ] Check [ ] Certificate to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAX ID. OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment are to be sent to someone other than the undersigned
or to the undersigned at an address other than that shown above.
Mail [ ] Check [ ] Certificate to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAX ID. OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE)
<PAGE> 6
SIGN HERE
AND COMPLETE SUBSTITUTE FORM W-9 ON REVERSE
X
- - --------------------------------------------------------------------------------
X
- - --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated:
- - --------------------------------------------------------------------------------
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
Share Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 5.)
Name(s) ------------------------------------------------------------------------
Name of Firm
---------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
-----------------------------------------------------------------
Address-------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-----------------------------------------------------
Tax Identification or
Social Security No.
-----------------------------------------------------------------
COMPLETE SUBSTITUTE FORM W-9 ON REVERSE
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature
----------------------------------------------------------------
Name --------------------------------------------------------------------------
Name of Firm
---------------------------------------------------------------------
(PLEASE PRINT)
Address-------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-----------------------------------------------------
Dated:--------------------------------------------------------------------------
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) of Shares tendered herewith, unless such holder(s) has
completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" above or (b) if such Shares are
tendered for the account of a firm which is a bank, broker, dealer, credit
union, savings association or other entity which is a member in good standing of
the Securities Transfer Agents Medallion Program (each of the foregoing being
referred to as an "Eligible Institution"). In all other cases, all signatures on
this Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instruction 5 of this Letter of Transmittal.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed
by stockholders either if Share Certificates are to be forwarded herewith or,
unless an Agent's Message is utilized, if tenders are to be made pursuant to the
procedure for tender by book-entry transfer set forth in "The Tender
Offer -- Section 3" of the Offer to Purchase. Share Certificates evidencing
tendered Shares, or timely confirmation (a "Book-Entry Confirmation") of a
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a
facsimile hereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer, and any other documents required by this Letter of Transmittal, must
be received by the Depositary at one of its addresses set forth herein prior to
the Expiration Date (as defined in Section 1 of the Offer to Purchase).
Stockholders whose Share Certificates are not immediately available or who
cannot deliver their Share Certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis may tender their Shares by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedure set forth in "The Tender Offer -- Section
3" of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be
made by or through an Eligible Institution; (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made available
by the Purchaser, must be received by the Depositary prior to the Expiration
Date; and (iii) the Share Certificates (or a Book-Entry Confirmation)
representing all tendered Shares, in proper form for transfer, in each case
together with the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees (or, in the
case of a book-entry delivery, an Agent's Message) and any other documents
required by this Letter of Transmittal, must be received by the Depositary
within three Nasdaq National Market ("Nasdaq") trading days after the date of
execution of such Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or a facsimile hereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
Share Certificate numbers and/or the number of Shares and any other required
information should be listed on a separate signed schedule attached hereto.
4. PARTIAL TENDERS. (Not Applicable to Book-Entry Stockholders) If fewer
than all the Shares evidenced by any Share Certificate submitted are to be
tendered, fill in the number of Shares represented by such Share Certificate
which are to be tendered in the box entitled "Number of Shares Tendered." In
such cases, new Share Certificates for the Shares that were evidenced by your
old Share Certificates, but were not tendered by you, will be sent to you,
unless otherwise provided in the appropriate box on this Letter of Transmittal,
as soon as practicable after the Expiration Date. All Shares represented by
Share Certificates delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
<PAGE> 8
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificate(s) without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
Share Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of Share
Certificates.
If this Letter of Transmittal or any Share Certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Share Certificates or
separate stock powers are required unless payment is to be made to or Share
Certificates for Shares not tendered or not purchased are to be issued in the
name of a person other than the registered holder(s). Signatures on such Share
Certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Share Certificate(s) listed, the certificate(s) must
be endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the Share
Certificate(s). Signatures on such Share Certificates or stock powers must be
guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, Purchaser will pay any stock transfer taxes with respect to the transfer and
sale of Shares to it or its order pursuant to the Offer. If, however, payment of
the purchase price is to be made to, or if certificate(s) for Shares not
tendered or accepted for payment are to be registered in the name of, any person
other than the registered holder(s), or if tendered Share Certificate(s) are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s) or such person) payable on account of the transfer
to such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or an exemption therefrom, is submitted.
EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE
NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATE(S)
LISTED IN THIS LETTER OF TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued
in the name of, and/or certificates for Shares not tendered or not accepted for
payment are to be issued or returned to, a person other than the signer of this
Letter of Transmittal or if a check and/or such Share Certificates are to be
returned to a person other than the person(s) signing this Letter of Transmittal
or to an address other than that shown in this Letter of Transmittal, the
appropriate boxes on this Letter of Transmittal must be completed.
8. WAIVER OF CONDITIONS. Subject to the terms and conditions of the
Merger Agreement, the conditions of the Offer (other than the Minimum Condition)
may be waived by Purchaser in whole or in part at any time and from time to time
in its sole discretion.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a stockholder whose tendered Shares are accepted for payment is
required to provide the Depositary with such stockholder's correct taxpayer
identification number ("TIN") on the Substitute Form W-9 below. If the
Depositary is not provided with the correct TIN, the Internal Revenue Service
may subject the stockholder or other payee to a $50 penalty. In addition,
payments that are made to such stockholder or other payee with respect to Shares
purchased pursuant to the Offer may be subject to 31% backup withholding.
<PAGE> 9
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the stockholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the stockholder or other payee. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Depositary.
The stockholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Shares or of the last transferee appearing on the transfers attached to, or
endorsed on, the Shares. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests
for assistance may be directed to the Information Agent at its address and
telephone number set forth below. Additional copies of the Offer to Purchase,
this Letter of Transmittal and the Notice of Guaranteed Delivery may also be
obtained from the Information Agent or from brokers, dealers, commercial banks
or trust companies.
11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Share Certificate
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary at (212) 936-5100. The stockholder will then be
instructed as to the steps that must be taken in order to replace the Share
Certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates have
been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK ENTRY TRANSFER OR THE NOTICE OF
GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE.
<PAGE> 10
TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS
(SEE INSTRUCTION 9)
<TABLE>
<C> <S> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
- - -------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT THE Social Security Number
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. or Employer
DEPARTMENT OF THE Identification Number
TREASURY INTERNAL REVENUE ----------------------------
SERVICE
--------------------------------------------------------------------------------------------
PART 2 -- Certification -- Under penalties of perjury, I certify that:
PAYER'S REQUEST FOR (1) The number shown on this form is my correct Taxpayer Identification Number (or I am
TAXPAYER IDENTIFICATION waiting for a number to be issued to me) and
NUMBER ("TIN") (2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because of
under-reporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to backup withholding, do not
cross out such Item (2).
SIGN HERE SIGNATURE: -------------------------------- DATE: --------------------------
--------------------------------------------------------------------------------------------
PART 3 -- Awaiting TIN [ ]
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable payments made to me will be withheld.
Signature:
- - --------------------------------------------------------- Date:
- - ------------------------------
<PAGE> 11
The Information Agent for the Offer is:
INNISFREE M&A INCORPORATED
501 Madison Avenue, 20th Floor
New York, New York 10022
Bankers and Brokers Call Collect: (212) 750-5833
All Others Call Toll Free: (888) 750-5834
March 31, 1999
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
TO TENDER SHARES OF COMMON STOCK
AND CLASS A COMMON STOCK
OF
SHERIDAN HEALTHCARE, INC.
As set forth in "The Tender Offer -- Section 3" of the Offer to Purchase
described below, this instrument or one substantially equivalent hereto must be
used to accept the Offer (as defined below) if certificates for Shares (as
defined below) are not immediately available or the certificates for Shares and
all other required documents cannot be delivered to American Stock Transfer &
Trust Company (the "Depositary") prior to the Expiration Date (as defined in
"The Tender Offer -- Section 1" of the Offer to Purchase) or if the procedure
for delivery by book-entry transfer cannot be completed on a timely basis. This
instrument may be delivered by hand or transmitted by facsimile transmission or
mail to the Depositary.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or
(for Eligible Institutions only) Overnight Delivery:
40 Wall Street
New York, New York 10005 (718) 236-4588 40 Wall Street
New York, New York 10005
For Information Telephone:
(212) 936-5100
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX IN THE LETTER OF TRANSMITTAL.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tender(s) to Vestar/Sheridan, Inc., a Delaware
corporation and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a
Delaware corporation and a wholly owned subsidiary of Vestar/Sheridan Investors,
LLC, a Delaware limited liability company, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated March 31, 1999 (the "Offer
to Purchase"), and in the related Letter of Transmittal (which, as amended from
time to time, together constitute the "Offer"), receipt of which is hereby
acknowledged, the number of shares of Common Stock, par value $0.01 per share
("Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A
Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan
Healthcare, Inc., a Delaware corporation, pursuant to the guaranteed delivery
procedure set forth in "The Tender Offer -- Section 3" of the Offer to Purchase.
Signature(s)
- - --------------------------------------
Name(s) of Record Holders
- - ----------------------------------------------------
PLEASE TYPE OR PRINT
Number of Shares
- - --------------------------------
Certificate Nos. (If Available)
- - ----------------------------------------------------
- - ----------------------------------------------------
Dated
- - ---------------------------------------------
Address(es)
- - --------------------------------------
- - ----------------------------------------------------
ZIP CODE
Area Code and Tel. No(s)
- - ----------------------------------------------------
Check box if Shares will be tendered by book-entry transfer
[ ] The Depository Trust Company
Account Number
- - ---------------------------------
- - ----------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a bank, broker, dealer, credit union,
savings association or other entity which is a member in good standing of the
Securities Transfer Agents Medallion Program, (a) represents that the above
named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule
14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b)
represents that such tender of Shares complies with Rule 14e-4, and (c)
guarantees to deliver to the Depositary either the certificates evidencing all
tendered Shares, in proper form for transfer, or to deliver Shares pursuant to
the procedure for book-entry transfer into the Depositary's account at The
Depository Trust Company (the "Book-Entry Transfer Facility"), in either case
together with the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees or an
Agent's Message (as defined in the Offer to Purchase) in the case of a
book-entry delivery, and any other required documents, all within three Nasdaq
National Market trading days after the date hereof.
- - ----------------------------------------------------
NAME OF FIRM
- - ----------------------------------------------------
ADDRESS
- - ----------------------------------------------------
Zip Code
Area Code and Tel. No.
- - ----------------------------------------------------
- - ----------------------------------------------------
AUTHORIZED SIGNATURE
Name
- - ---------------------------------------------
(PLEASE TYPE OR PRINT)
Title
- - ----------------------------------------------
Dated
- - ---------------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD
BE SENT WITH LETTER YOUR OF TRANSMITTAL.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
AND CLASS A COMMON STOCK
OF
SHERIDAN HEALTHCARE, INC.
AT
$9.25 NET PER SHARE
BY
VESTAR/SHERIDAN, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN HOLDINGS, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN INVESTORS, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON TUESDAY, APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED.
March 31, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Vestar/Sheridan, Inc., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a
Delaware corporation ("Parent") and a wholly owned subsidiary of Vestar/Sheridan
Investors, LLC, a Delaware limited liability company ("Holdings"), to act as
Information Agent in connection with Purchaser's offer to purchase for cash all
the outstanding shares of Common Stock, par value $0.01 per share ("Common
Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common
Stock" and, together with the Common Stock, the "Shares"), of Sheridan
Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of
$9.25 per Share, net to the seller in cash, without interest thereon, less
applicable withholding taxes, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated March 31, 1999 (the "Offer to Purchase"),
and in the related Letter of Transmittal (which, as amended from time to time,
together constitute the "Offer") enclosed herewith. Holders of Shares whose
certificates for such Shares (the "Share Certificates") are not immediately
available or who cannot deliver their Share Certificates and all other required
documents to the Depositary (as defined below) prior to the Expiration Date (as
defined in the Offer to Purchase), or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Shares according to the
guaranteed delivery procedures set forth in "The Tender Offer -- Section 3" of
the Offer to Purchase.
Please furnish copies of the enclosed materials to those of your clients
for whom you hold Shares registered in your name or in the name of your nominee.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase;
2. The Letter of Transmittal to tender Shares for your use and for
the information of your clients. Facsimile copies of the Letter of
Transmittal may be used to tender Shares;
3. The Notice of Guaranteed Delivery for Shares to be used to accept
the Offer if Share Certificates are not immediately available or if such
Share Certificates and all other required documents cannot be delivered to
American Stock Transfer & Trust Company (the "Depositary") by the
Expiration Date or if the procedure for book-entry transfer cannot be
completed by the Expiration Date;
<PAGE> 2
4. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name or in the name of
your nominee, with space provided for obtaining such clients' instructions
with regard to the Offer;
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
6. A return envelope addressed to the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON APRIL 27, 1999, UNLESS THE OFFER IS
EXTENDED.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal and any required signature guarantees, or an
Agent's Message (as defined in the Offer to Purchase) in connection with a book-
entry delivery of Shares, and other required documents should be sent to the
Depositary and (ii) either Share Certificates representing the tendered Shares
should be delivered to the Depositary, or such Shares should be tendered by
book-entry transfer into the Depositary's account maintained at the Book-Entry
Transfer Facility (as described in the Offer to Purchase), all in accordance
with the instructions set forth in the Letter of Transmittal and the Offer to
Purchase.
If holders of Shares wish to tender, but it is impracticable for them to
forward their Share Certificates or other required documents on or prior to the
Expiration Date or to comply with the book-entry transfer procedures on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
specified in "The Tender Offer -- Section 3" of the Offer to Purchase.
Purchaser will not pay any commissions or fees to any broker, dealer or
other person (other than the Depositary and Information Agent) for soliciting
tenders of Shares pursuant to the Offer. Purchaser will, however, upon request,
reimburse you for customary clerical and mailing expenses incurred by you in
forwarding any of the enclosed materials to your clients. Purchaser will pay or
cause to be paid any stock transfer taxes payable on the transfer of Shares to
it, except as otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
the Information Agent, at its address and telephone numbers set forth on the
back cover of the Offer to Purchase. Additional copies of the enclosed materials
may be obtained from the Information Agent.
Very truly yours,
Innisfree M&A Incorporated
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON, THE AGENT OF THE PURCHASER, PARENT, HOLDINGS, THE COMPANY, THE
DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
AND CLASS A COMMON STOCK
OF
SHERIDAN HEALTHCARE, INC.
AT
$9.25 NET PER SHARE
BY
VESTAR/SHERIDAN, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN HOLDINGS, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN INVESTORS, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON TUESDAY, APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration is an Offer to Purchase dated March 31,
1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as
amended from time to time, together constitute the "Offer") relating to the
offer by Vestar/Sheridan, Inc., a Delaware corporation ("Purchaser") and a
wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware
corporation ("Parent") and a wholly owned subsidiary of Vestar/Sheridan
Investors, LLC, a Delaware limited liability company ("Holdings"), to purchase
all of the outstanding shares of Common Stock, par value $0.01 per share
("Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A
Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan
Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of
$9.25 per Share, net to the seller in cash, without interest thereon, less
applicable withholding taxes upon the terms and subject to the conditions set
forth in the Offer. We are the holder of record of Shares held by us for your
account. A tender of such Shares can be made only by us as the holder of record
and pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Shares held by us
for your account.
We request instructions as to whether you wish to have us tender on your
behalf any or all of such Shares held by us for your account, pursuant to the
terms and subject to the conditions set forth in the Offer to Purchase.
Your attention is directed to the following:
1. The tender price is $9.25 per Share, net to the seller in cash
without interest thereon.
2. The Offer is made for all of the outstanding Shares.
3. The Board of Directors of the Company has unanimously determined
that the Merger Agreement (as defined below) and the transactions
contemplated thereby, including each of the Offer and the Merger (as
defined below), are fair to and in the best interests of the holders of the
Shares and resolved to recommend that the holders of the Shares accept the
Offer and tender their Shares to Purchaser.
<PAGE> 2
4. The Offer is being made pursuant to the Agreement and Plan of
Merger, dated as of March 24, 1999 (the "Merger Agreement"), which provides
that subsequent to the consummation of the Offer, Purchaser will merge into
the Company (the "Merger"). At the effective time of the Merger (the
"Effective Time"), each then outstanding Share (other than Shares owned by
Parent and its subsidiaries and Shares held by stockholders who have not
voted in favor of or consented to the Merger and who have properly demanded
appraisal of their Shares in accordance with Section 262 of the Delaware
General Corporation Law) will be canceled, extinguished and converted into
the right to receive $9.25 in cash, without interest, less any withholding
taxes required under applicable law.
5. The Offer and withdrawal rights will expire at 12:00 Midnight, New
York City time, on Tuesday, April 27, 1999, unless the Offer is extended.
6. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares pursuant to the
Offer.
7. The Offer is conditioned upon, among other things, (i) there being
validly tendered and not properly withdrawn prior to the expiration of the
Offer a number of Shares which, together with any shares owned by Parent or
Purchaser, or any controlled affiliate thereof, constitutes at least a
majority of the voting power (determined on a fully-diluted basis), on the
date of purchase, of all the securities of the Company entitled to vote
generally in the election of directors or in a merger and (ii) the
satisfaction of the Financing Condition referred to in the Offer to
Purchase.
The Offer is being made solely by the Offer to Purchase and the related
Letter of Transmittal and any ancillary documents thereto and is being made to
all holders of Shares. Purchaser is not aware of any state where the making of
the Offer is prohibited by administrative or judicial action pursuant to any
valid state statute. If Purchaser becomes aware of any valid state statute
prohibiting the making of the Offer, Purchaser will make a good faith effort to
comply with such statute. If, after such good faith effort, Purchaser cannot
comply with such state statute, the Offer will not be made to nor will tenders
be accepted from or on behalf of the holders of Shares in such state. In any
jurisdiction where the securities, "blue sky" or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
IF YOU WISH TO HAVE US TENDER ANY OR ALL OF THE SHARES HELD BY US FOR YOUR
ACCOUNT, PLEASE INSTRUCT US BY COMPLETING, EXECUTING AND RETURNING TO US THE
INSTRUCTION FORM CONTAINED IN THIS LETTER. IF YOU AUTHORIZE A TENDER OF YOUR
SHARES, ALL SUCH SHARES WILL BE TENDERED UNLESS OTHERWISE SPECIFIED IN SUCH
INSTRUCTION FORM. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO
PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE
OFFER.
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE OFFER TO
PURCHASE FOR CASH ALL OUTSTANDING SHARES
OF COMMON STOCK AND CLASS A COMMON STOCK
OF
SHERIDAN HEALTHCARE, INC.
BY
VESTAR/SHERIDAN, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN HOLDINGS, INC.
A WHOLLY OWNED SUBSIDIARY OF
VESTAR/SHERIDAN INVESTORS, LLC
The undersigned acknowledge(s) receipt of your letter enclosing the Offer
to Purchase dated March 31, 1999 (the "Offer to Purchase"), and the related
Letter of Transmittal pursuant to an offer by Vestar/Sheridan, Inc., a Delaware
corporation and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a
Delaware corporation and a wholly owned subsidiary of Vestar/Sheridan Investors,
LLC, a Delaware limited liability company, to purchase all outstanding shares of
Common Stock, par value $0.01 per share ("Common Stock"), and Class A Common
Stock, par value $0.01 per share (the "Class A Common Stock" and, together with
the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., at a purchase
price of $9.25 per Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to Purchase
and the related Letter of Transmittal.
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares) which are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer to Purchase and in the related Letter of Transmittal
furnished to the undersigned.
DATE:
- - ---------------
NUMBER OF SHARES TO BE TENDERED:*
--------------- SHARES
SIGN HERE
- - --------------------------------------------------------------------------------
Signature(s)
- - --------------------------------------------------------------------------------
Please Print Name(s)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(Address(es)
- - --------------------------------------------------------------------------------
Area Code and Telephone Number
- - --------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number
- - ---------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU)
TO GIVE THE PAYER. -- Social security numbers have nine digits separated by two
hyphens: i.e., 000-00-0000. Employee identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- - ---------------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of the ac-
account) count or, if combined funds,
the first individual on the
account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is also
trustee) The actual owner(1)
b. So-called trust account that
is not a legal or valid trust
under state law
5. Sole proprietorship The owner(3)
- - ---------------------------------------------------------------------
GIVE THE EMPLOYER IDEN-
FOR THIS TYPE OF ACCOUNT: TIFICATION NUMBER OF --
- - ---------------------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or The legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or
other tax-exempt organization
account
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
------------------------------------------------------------------
1. List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
2. Circle the minor's name and furnish the minor's social security number.
3. You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
4. List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated in
the account title.)
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5. Application for a Social Security Card, at the local
Social Administration office, or Form SS-4, Application for Employer
Identification Number, by calling 1 (800) TAX-FORM, and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from withholding include:
- - - An organization exempt from tax under Section 501(a), an individual retirement
account (IRA), or a custodial account under Section 403(b)(7), if the account
satisfies the requirements of Section 401(f)(2).
- - - The United States or a state thereof, the District of Columbia, a possession
of the United States, or a political subdivision or wholly-owned agency or
instrumentality of any one or more of the foregoing.
- - - An international organization or any agency or instrumentality thereof.
- - - A foreign government and any political subdivision, agency or instrumentality
thereof.
Payees that may be exempt from backup withholding include:
- - - A corporation.
- - - A financial institution.
- - - A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- - - A real estate investment trust.
- - - A common trust fund operated by a bank under Section 584(a).
- - - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - - A middleman known in the investment community as a nominee or who is listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
- - - A futures commission merchant registered with the Commodity Futures Trading
Commission.
- - - A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
- - - Payments to nonresident aliens subject to withholding under Section 1441.
- - - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - - Payments of patronage dividends not paid in money.
- - - Payments made by certain foreign organizations.
- - - Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
- - - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and you have
not provided your correct taxpayer identification number to the payer.
- - - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- - - Payments described in Section 6049(b)(5) to nonresident aliens.
- - - Payments on tax-free covenant bonds under Section 1451.
- - - Payments made by certain foreign organizations.
- - - Mortgage interest paid to you.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see the regulations under sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050A and 6050N.
Exempt payees described above must file Form W-9 or a substitute Form W-9 to
avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE
FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
PRIVACY ACT NOTICE. -- Section 6109 requires you to provide your correct
taxpayer identification number to payers, who must report the payments to the
IRS. The IRS uses the number for identification purposes and may also provide
this information to various government agencies for tax enforcement or
litigation purposes. Payers must be given the numbers whether or not recipients
are required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and not
to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The Offer (as defined below) is made solely
by the Offer to Purchase dated March 31, 1999 and the related Letter of
Transmittal and is being made to all holders of Shares (as defined below).
Purchaser (as defined below) is not aware of any state where the making of the
Offer is prohibited by administrative or judicial action pursuant to any valid
state statute. If Purchaser becomes aware of any valid state statute prohibiting
the making of the Offer, Purchaser will make a good faith effort to comply with
such statute. If, after such good faith effort, Purchaser cannot comply with
such state statute, the Offer will not be made to nor will tenders be accepted
from or on behalf of the holders of Shares in such state. In any jurisdiction
where the securities, "blue sky" or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Purchaser by one or more registered brokers or dealers licensed under the laws
of such jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock and
Class A Common Stock
of
Sheridan Healthcare, Inc.
at
$9.25 Net Per Share
by
Vestar/Sheridan, Inc.
a wholly owned subsidiary of
Vestar/Sheridan Holdings, Inc.
a wholly owned subsidiary of
Vestar/Sheridan Investors, LLC
Vestar/Sheridan, Inc., a Delaware corporation ("Purchaser") and a
wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware
corporation ("Parent") and a wholly owned subsidiary of Vestar/Sheridan
Investors, LLC, a Delaware limited liability company ("Holdings"), hereby offers
to purchase for cash all of the outstanding shares of Common Stock, par value
$0.01 per share ("Common Stock"), and Class A Common Stock, par value $0.01 per
share ("Class A Common Stock and, together with the Common Stock, the "Shares"),
of Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), at a
purchase price of $9.25 per Share, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated March 31, 1999 (the "Offer to Purchase") and in the related
Letter of Transmittal (which, as amended from time to time, together constitute
the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING
VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER
A NUMBER OF SHARES WHICH, TOGETHER WITH ANY SHARES OWNED BY PARENT OR PURCHASER,
OR ANY CONTROLLED AFFILIATE THEREOF, CONSTITUTES AT LEAST A MAJORITY OF THE
VOTING POWER (DETERMINED ON A FULLY-DILUTED BASIS), ON THE DATE OF PURCHASE, OF
ALL THE SECURITIES OF THE COMPANY ENTITLED TO VOTE GENERALLY IN THE ELECTION OF
DIRECTORS OR IN A MERGER (THE "MINIMUM CONDITION") AND (ii) (1) PURCHASER SHALL
HAVE RECEIVED FUNDING FOR THE OFFER SUFFICIENT TO PAY FOR ALL SHARES TENDERED
PURSUANT TO THE OFFER AND NOT VALIDLY WITHDRAWN AND TO PAY ALL FEES AND EXPENSES
RELATED TO THE OFFER AND OTHERWISE ON THE TERMS AND SUBJECT TO THE CONDITIONS
SET FORTH IN THE NATIONSBANK COMMITMENT LETTER (AS DEFINED IN THE MERGER
AGREEMENT) AND (2) THE PERMANENT FACILITIES (AS DEFINED IN THE MERGER AGREEMENT)
SHALL HAVE BEEN FULLY EXECUTED AND DELIVERED AND SHALL BE IN FULL FORCE AND
EFFECT AND ALL CONDITIONS TO FUNDING THEREUNDER THAT ARE REQUIRED TO BE, OR ARE
CAPABLE OF BEING, SATISFIED PRIOR TO THE PURCHASE OF SHARES PURSUANT TO THE
OFFER SHALL HAVE BEEN SATISFIED AND THERE IS NO REASON TO BELIEVE THAT ANY OF
THE OTHER CONDITIONS TO FUNDING UNDER THE PERMANENT FACILITIES WILL NOT BE
SATISFIED PRIOR TO THE TERMINATION OF THE MERGER AGREEMENT OR THE PERMANENT
FACILITIES.
The purpose of the Merger Agreement is to acquire control of, and the
entire equity interest in, the Company. As promptly as practicable following
consummation of the Offer and after satisfaction or waiver of all conditions to
the Merger (as defined below) set forth in the Merger Agreement (as defined
below), Purchaser intends to acquire the remaining equity interest in the
Company not acquired in the Offer by consummating the Merger. The Offer is being
made pursuant to an Agreement and Plan of Merger, dated as of March 24, 1999
(the "Merger Agreement"), among Parent, Purchaser and the Company. The Merger
Agreement provides, among other things, for the making of the Offer by
Purchaser, and further provides that, following the completion of the Offer,
upon the terms and subject to the conditions of the Merger Agreement and in
accordance with the Delaware General Corporation Law ("DGCL"), Purchaser will be
merged into the Company (the "Merger"). At the effective time of the Merger (the
"Effective Time") each Share outstanding immediately prior to the Effective Time
(other than Shares owned by Parent and its subsidiaries and Shares held by
stockholders who have not voted in favor of or consented to the Merger and who
have properly demanded appraisal of their Shares in accordance with Section 262
of the DGCL) will, by virtue of the Merger and without any action on the part of
the holders thereof, be canceled, extinguished and converted into the right to
receive $9.25 in cash, or any higher price that may be paid pursuant to the
Offer, payable to the holder thereof, without interest, less any withholding
taxes required under applicable law. The Merger Agreement is more fully
described in the Offer to Purchase.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (EXCLUDING
ABSTAINING DIRECTORS WHO WOULD BE CONSIDERED "INTERESTED DIRECTORS" UNDER THE
DGCL) DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST
INTERESTS OF THE HOLDERS OF SHARES, APPROVED THE MERGER AGREEMENT AND THE OFFER
AND THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, DECLARED THE
MERGER TO BE ADVISABLE AND RESOLVED TO RECOMMEND THAT THE HOLDERS OF THE SHARES
ACCEPT THE OFFER, TENDER THEIR SHARES TO PURCHASER AND ADOPT THE MERGER
AGREEMENT.
For purposes of the Offer, Purchaser will be deemed to have accepted
for payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to American
Stock Transfer & Trust Company (the "Depositary") of Purchaser's acceptance for
payment of such Shares pursuant to the Offer. Upon the terms and subject to the
conditions of the Offer, payment for Shares accepted for payment pursuant to the
Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payments from Purchaser and transmitting such payments to
stockholders whose Shares have been accepted for payment. Under no circumstances
will interest on the purchase price for Shares be paid by the Purchaser,
regardless of any extension of the Offer or any delay in making such payment. In
all cases, payment for Shares tendered and accepted for payment pursuant to the
Offer will be made only after timely receipt by the Depositary of (i)
certificates representing Shares (the "Share Certificates") or timely
confirmation of a book-entry transfer of such Shares into the Depositary's
account at the Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in the Offer to Purchase, (ii) the Letter
of Transmittal (or a facsimile thereof), properly completed and duly executed,
with any required signature guarantees, or an Agent's Message (as defined in the
Offer to Purchase) in connection with a book-entry transfer and (iii) any other
documents required by the Letter of Transmittal.
Subject to the provisions of the Merger Agreement and the applicable
rules and regulations of the Securities and Exchange Commission (the
"Commission"), Purchaser reserves the right, in its sole discretion, to waive
any or all conditions to the Offer (other than the Minimum Condition) and to
make any other changes in the terms and conditions to the Offer. Subject to the
provisions of the Merger Agreement and the applicable rules and regulations of
the Commission, if by the Expiration Date any or all of such Offer Conditions
have not been satisfied, Purchaser reserves the right (but shall not be
obligated) to (i) terminate the Offer and return all tendered Shares to
tendering stockholders, (ii) waive such unsatisfied conditions (other than the
Minimum Condition) and purchase all Shares validly tendered or (iii) extend the
Offer and, subject to the terms of the Offer (including the rights of
stockholders to withdraw their Shares), retain the Shares which have been
tendered, until the termination of the Offer, as extended.
Subject to the provisions of the Merger Agreement and the applicable
rules and regulations of the Commission, Purchaser expressly reserves the right,
in its sole discretion, at any time and from time to time, and regardless of
whether or not any of the Offer Conditions set forth in the Offer to Purchase
shall have occurred or shall have been determined by Purchaser to have occurred,
to (i) extend the period of time during which the Offer is open and thereby
delay acceptance of payment of, and the payment for, any Shares, by giving oral
or written notice of such extension to the Depositary and (ii) amend the Offer
in any respect by giving oral or written notice of such amendment to the
Depositary.
Any extension, delay, termination, waiver or amendment will be followed
as promptly as practicable by public announcement thereof to be made no later
than 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date. During any such extension, all Shares
previously tendered and not properly withdrawn will remain subject to the Offer,
subject to the rights of a tendering stockholder to withdraw such stockholder's
Shares. The term "Expiration Date" means 12:00 Midnight, New York City time, on
Tuesday, April 27, 1999, unless and until the Purchaser, in its sole discretion
(but subject to the terms and conditions of the Merger Agreement), shall have
extended the period during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Purchaser, shall expire.
Tenders of Shares made pursuant to the Offer may be withdrawn at any
time prior to the Expiration Date. Thereafter, such tenders are irrevocable
except that they may be withdrawn after May 29, 1999 unless theretofore accepted
for payment as provided in the Offer to Purchase. For a withdrawal to be
effective, a written, telegraphic, telex or facsimile transmission notice of
withdrawal must be timely received by the Depositary at its addresses set forth
on the back cover of the Offer to Purchase. Any notice of withdrawal must
specify the name of the person who tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder, if
different from that of the person who tendered such Shares. If the Shares to be
withdrawn have been delivered or otherwise identified to the Depositary, then
prior to the physical release of the certificates, the name of the registered
holder (if different from the tendering stockholder) and the serial numbers
shown on such certificates must be submitted to the Depositary, together with a
signed notice of withdrawal, the signatures on which must be guaranteed by an
Eligible Institution unless such Shares have been tendered for the account of
any Eligible Institution. If Shares have been tendered pursuant to the procedure
for book-entry transfer as set forth in the Offer to Purchase, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Shares. All questions as to
the form and validity (including time of receipt) of any notice of withdrawal
will be determined by the Purchaser, in its sole discretion, whose determination
will be final and binding. None of Holdings, Purchaser, Parent, any of their
affiliates or assigns, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal or incur any liability for failure to give such
notification. Withdrawals of Shares may not be rescinded. Any Shares properly
withdrawn will thereafter be deemed not to have been validly tendered for
purposes of the Offer. However, withdrawn Shares may be re-tendered at any time
prior to the Expiration Date by following one of the procedures described in the
Offer to Purchase.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided Purchaser with the Company's stockholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. The Offer to Purchase and the related Letter of Transmittal
and other relevant materials will be mailed by Purchaser to record holders of
Shares and furnished to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing, for subsequent transmittal to beneficial
owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Questions and requests for assistance may be directed to the
Information Agent as set forth below. Requests for copies of the Offer to
Purchase and the related Letter of Transmittal and all other tender offer
materials may be directed to the Information Agent and copies will be furnished
promptly at Purchaser's expense. Purchaser will not pay any fees or commissions
to any broker or dealer or any other person (other than the Information Agent)
for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
[Innisfree Logo]
501 Madison Avenue, 20th Floor
New York, New York 10022
Banks and Brokers Call Collect: (212) 750-5833
All Others Call Toll Free: (888) 750-5834
March 31, 1999
<PAGE> 1
Vestar Capital Partners and Management of Sheridan Healthcare to Take the
Company Private
Sheridan Healthcare Shareholders to Receive $9.25 Per Share In Cash
NEW YORK and HOLLYWOOD, Fla. (March 25, 1999) Sheridan Healthcare, Inc.
(Nasdaq/NM: SHCR) today announced the signing of a definitive merger agreement
between the Company and an investor group led by Vestar Capital Partners and
Sheridan Healthcare senior management. Sheridan Healthcare is a physician
practice management company primarily providing anesthesia and women's health
services to patients in Florida and Texas. The management investors are led by
Dr. Mitchell Eisenberg and Dr. Lewis Gold, the current Chief Executive
Officer and Executive Vice President of the Company, respectively.
Under the terms of the agreement, the investor group will offer Sheridan
Healthcare shareholders $9.25 per share in cash for all outstanding common
shares in a tender offer to commence within the next five business days.
Including debt and other obligations of the Company, and costs expected to be
incurred in connection with the acquisition, the total value of the transaction
is approximately $155 million. NationsBank, N.A. and its affiliates, the
Companys existing lender, have committed to provide $75 million in bank
financing to fund the acquisition. Through Vestar Capital Partners III, L.P.,
Vestar has committed to provide the remaining funds necessary to complete the
transaction. NationsBank has also committed to provide a $50 million credit
facility to fund the Companys long-term future growth and expansion.
Sheridan Healthcare entered into the merger agreement following a unanimous
recommendation by the Companys Board of Directors. The Board received fairness
opinions from Bowles Hollowell Conner, a division of First Union Capital
Markets Corp., and Salomon Smith Barney Inc., who, as previously announced, had
been retained to assist the Company in exploring strategic alternatives.
Dr. Eisenberg stated, "Sheridan Healthcare has engaged in an extensive process,
with the assistance of its financial advisors, in soliciting and evaluating
third party interest in a sale of the Company. Our new partnership with Vestar
provides Sheridan Healthcare with a much needed capital base to achieve its
longer-term growth objectives. It also importantly provides Sheridan
Healthcares community of employees, physician partners, hospitals and payors
with a stronger sense of stability and financial backing."
<PAGE> 2
Jim Elrod, Managing Director of Vestar, said, "Vestar believes that physicians,
like those affiliated with Sheridan Healthcare, will always be at the center of
quality healthcare. Sheridan Healthcare has an enviable record of delivering
real value to its physicians while serving a growing patient base in very
attractive markets. We're extremely pleased to be investing with Dr. Eisenberg,
Dr. Gold, and the rest of the management team in the business they've built."
Following completion of the tender offer, Vestar will be entitled to designate a
majority of the Board of Directors of Sheridan Healthcare. The parties will
complete a second-step cash merger at $9.25 per share as promptly as practicable
following completion of the tender offer. The transaction is subject to a
variety of conditions, including receipt of at least a majority of the voting
stock in the tender offer, shareholder approval, financing and regulatory
approvals.
Sheridan Healthcare, Inc., based in Hollywood, Fla., is a physician practice
management company which employs or manages specialist physicians providing
services at hospitals and ambulatory surgical facilities in the areas of
anesthesia, neonatology, pediatrics, emergency services, obstetrics and pain
management. In addition, it owns and operates, or manages, office-based
gynecological, obstetrical, infertility, perinatology, primary care and surgical
physician practices. The Company is affiliated with approximately 363 physicians
and 161 allied health professionals, practicing under 55 specialty service
contracts at 37 hospitals and at 28 office locations.
Vestar Capital Partners is a leading investment firm that manages more than $1
billion in equity capital and specializes in management buyouts and growth
capital investments. Vestar invests, as partners with management teams, in
high-quality, middle market companies. Since its founding in 1988, Vestar has
completed approximately 30 transactions with a total value in excess of $5
billion.
Statements contained in this press release which are not historical facts may be
considered forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those projected. Those risks and uncertainties include
fluctuations in the volume of procedures performed by the Company's affiliated
physicians, changes in the reimbursement rates for those procedures, uncertainty
about the ability to collect the appropriate fees for those procedures, the loss
of significant hospital or third-party payor relationships, and changes in the
number of patients using the Company's physician services, as well as other
risks detailed in the Company's filings with the Securities and Exchange
Commission.
###
Contact:
Kara Fitzsimmons or Gene Donati
Clark & Weinstock
212-953-2550
Jim Elrod Vestar Capital Partners
212-351-1609
Michael Schundler
Sheridan Healthcare, Inc. 954-986-7506
<PAGE> 1
NATIONSBANK, N.A.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
NATIONSBANC MONTGOMERY SECURITIES LLC
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
March 24, 1999
Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, New York
Attention: Mr.Jim Elrod
RE: Acquisition Financing
Dear Jim:
You have advised us that Vestar Capital Partners III, L.P. (together with its
affiliates, the "Sponsor") intends to form an acquisition company (the
"Acquisition Company") which will (i) acquire (the "Acquisition") outstanding
common stock of Sheridan Healthcare, Inc. (the "Target") pursuant to a tender
offer (the "Tender Offer"), (ii) following the consummation of the Tender Offer,
merge itself into the Target, with the Target being the surviving entity (the
"Merger") and (iii) contemporaneously with consummation of the Merger, refinance
all existing funded indebtedness of the Target (the "Refinancing"). The
Acquisition Company will be the wholly-owned subsidiary of a holding company
(the "Parent") formed by the Sponsor. You have advised us that the sum required
to consummate the Tender Offer, the Acquisition, the Merger and the Refinancing
(including payment of transaction fees and expenses in an amount not to exceed
$12.0 million) is approximately $165 million (before giving effect to any
acquisitions by the Target reasonably acceptable to us after the date hereof).
The Tender Offer, the Acquisition, the Merger, the Refinancing and the payment
of transaction fees and expenses in connection therewith are collectively
referred to herein as the "Transaction".
You have advised us that up to $33.2 million of a senior tender offer facility
will be required to finance the Tender Offer and that up to $125.0 million (of
which amount $75.0 million will be drawn at closing) in permanent senior debt
financing will be required in order to refinance the tender offer financing, to
close the Merger, to pay the cost and expenses related to the Tender Offer, the
Acquisition, the Merger and the Refinancing and provide for ongoing general
working capital and corporate purposes after completion of the Merger. Prior to
the Merger, the
<PAGE> 2
Vestar Capital Partners III, L.P.
March 24, 1999
Page 2
Acquisition Company will be the "Borrower" and, subsequent to the Merger, the
Target (into which the Acquisition Company shall have been merged) will be the
"Borrower." You have further advised us that that no external debt financing
other than the financing described herein and the $20.0 million junior
subordinated debt financing referred to in the term sheet attached hereto (the
"Junior Subordinated Debt") will be required in connection with the Transaction.
You have further advised us that in connection with the Transaction a common
equity investment in cash of no less than $60.1 million will be contributed by
the Sponsor to the Parent (and concurrently contributed by the Parent to the
Borrower) and no less than $3.0 million of common equity in cash will be further
contributed by certain members of the Target's existing management team. The
Sponsor may make a cash investment of $20.0 million in common or preferred stock
of the Borrower (or, at the option of the Sponsor, the Parent (in which case,
the proceeds of such contribution shall be concurrently contributed by the
Parent to the Borrower)) in lieu of providing the Junior Subordinated Debt.
You have also advised us that you intend to pursue a $90 million senior
subordinated financing (the "Senior Subordinated Debt") in conjunction with the
Permanent Facilities. We understand that, in the event that you consummate the
Senior Subordinated Debt financing concurrently with the closing of the
Permanent Facilities, the Junior Subordinated Debt or a $20 million equity
investment in lieu thereof will not be required to consummate the Transaction,
and you will only require, in addition to the Tender Offer Facility, a $50
million permanent senior secured revolving credit facility (of which $5 million
will be drawn at closing of the Permanent Facilities) to provide for ongoing
general corporate purposes after completion of the Transaction. The financing
arrangements described in this paragraph are referred to herein and in the Term
Sheet (as defined below) as the "Alternate Financing Structure."
In connection with the foregoing, NationsBank, N.A. ("NationsBank" or the
"Agent") is pleased to advise you of its commitment to provide the full
principal amount of the $33.2 million senior tender offer facility (the "Tender
Offer Facility") and the $125.0 million permanent senior secured credit
facilities (the "Permanent Facilities", and together with the Tender Offer
Facility, the "Credit Facilities") described in the term sheet attached hereto
as Annex I (the "Term Sheet"). NationsBanc Montgomery Securities LLC ("NMS") is
pleased to advise you of its commitment to act as Sole Lead Arranger and Sole
Book Manager for the Credit Facilities and to form a syndicate of financial
institutions (together with NationsBank, the "Lenders") reasonably acceptable to
you for the Credit Facilities. No additional agents, arrangers or book managers
will be appointed without the prior approval of NationsBank and NMS. All
capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Term Sheet.
The commitments of NationsBank and NMS hereunder are subject to the satisfaction
of each of the following conditions precedent in a manner acceptable to
NationsBank and NMS in their sole discretion:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the Term Sheet;
<PAGE> 3
Vestar Capital Partners III, L.P.
March 24, 1999
Page 3
(c) the absence of a material breach of any representation or warranty of
the Sponsor set forth herein;
(d) execution of the fee letter dated the date hereof among the Sponsor,
NationsBank and NMS (the "Fee Letter") prior to or concurrently with
the acceptance by the Sponsor of this letter; and
(e) there not having occurred and being continuing since the date hereof a
material adverse change in the market for syndicated bank credit
facilities which NationsBank and NMS determine in their reasonable
discretion could have a material adverse effect on the syndication of
the Credit Facilities.
In addition to the forgoing conditions, the commitments of NationsBank and NMS
hereunder are subject to the requirement that the interest rates, maturities,
amortization schedules, covenants, defaults, remedies, subordination provisions
and other terms of the Junior Subordinated Debt or the Senior Subordinated Debt
be reasonably satisfactory to the Agent.
Furthermore, the commitments of NationsBank and NMS hereunder are based upon the
financial and other information regarding the Target and its subsidiaries
previously provided to NationsBank and NMS and are subject to the conditions,
among others, that (i) NationsBank and NMS shall have completed, with results
reasonably satisfactory to them and their counsel, all legal and accounting due
diligence with respect to the Target and its subsidiaries and (ii) there shall
not have occurred after December 31, 1998 any material adverse change in the
business, assets, liabilities (actual or contingent), operations, condition
(financial or otherwise) or prospects of the Target and its subsidiaries taken
as a whole. If, after the date hereof, NationsBank and NMS become aware of
information with respect to the Target and its subsidiaries relating to
conditions or events not previously disclosed to NationsBank and NMS or relating
to new information or additional developments concerning conditions or events
previously disclosed to NationsBank and NMS and which has a material adverse
effect on the business, assets, liabilities (actual or contingent), operations,
condition (financial or otherwise) or prospects of the Target and its
subsidiaries taken as a whole, NationsBank and NMS may suggest alternative
financing amounts or structures that ensure adequate protection for the Lenders
or decline to participate in the proposed financing.
You agree to actively assist NationsBank and NMS in achieving a syndication of
the Credit Facilities that is satisfactory to NationsBank, NMS and you.
Syndication of the Credit Facilities will be accomplished by a variety of means,
including direct contact during the syndication between senior management and
advisors of the Sponsor and, to the extent reasonably practicable, the Target,
and the proposed Lenders. To assist NationsBank and NMS in the syndication
efforts, you hereby agree to (a) provide and cause your advisors to provide
NationsBank and NMS and the other Lenders upon request with all information
reasonably deemed necessary by NationsBank and NMS to complete syndication,
including but not limited to information and evaluations prepared by the Sponsor
and the Target and their advisors, or on
<PAGE> 4
Vestar Capital Partners III, L.P.
March 24, 1999
Page 4
their behalf, relating to the Transaction, (b) assist NationsBank and NMS upon
their reasonable request in the preparation of an Information Memorandum to be
used in connection with the syndication of the Credit Facilities and (c)
otherwise assist NationsBank and NMS in their syndication efforts, including by
making available officers and advisors of the Sponsor and, to the extent
reasonably practicable, the Target and its subsidiaries from time to time to
attend and make presentations regarding the business and prospects of the Target
and its subsidiaries, as appropriate, at a meeting or meetings of prospective
Lenders. You further agree to refrain from engaging in any additional financings
for the Transaction (except as described in this letter and except for the
Junior Subordinated Debt or a $20 million equity investment in lieu thereof or,
if the Alternate Financing Structure is implemented, the Senior Subordinated
Debt) during such syndication process unless otherwise agreed to by NationsBank
and NMS.
It is understood and agreed that NationsBank and NMS, after consultation with
you, will manage and control all aspects of the syndication, including decisions
as to the selection of proposed Lenders (which shall be reasonably acceptable to
you) and any titles offered to proposed Lenders, when commitments will be
accepted and the final allocations of the commitments among the Lenders. It is
understood that no Lender participating in the Credit Facilities will receive
compensation from you outside the terms contained herein, in the Term Sheet and
in the Fee Letter in order to obtain its commitment. It is also understood and
agreed that the amount and distribution of the fees among the Lenders will be at
the sole discretion of NationsBank and NMS.
You hereby represent, warrant and covenant that (i) to your knowledge, all
information, other than Projections (as defined below), which has been or is
hereafter made available to NationsBank and NMS or the Lenders by you or any of
your representatives in connection with the transactions contemplated hereby
("Information"), when taken as a whole, is and will be complete and correct in
all material respects and does not and will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements contained therein not materially misleading and (ii) all financial
projections and estimates concerning the Target and its subsidiaries that have
been or are hereafter made available to NationsBank and NMS or the Lenders by
you or any of your representatives (the "Projections") have been or will be
prepared in good faith based upon assumptions believed by you to be reasonable.
You agree to furnish us with such Information and Projections as we may
reasonably request and to supplement the Information and the Projections from
time to time until closing of the Permanent Facilities so that the
representation and warranty in the preceding sentence is correct on the such
date. In arranging and syndicating the Credit Facilities, NationsBank and NMS
will be using and relying on the Information and the Projections without
independent verification thereof.
By executing this letter agreement, you agree to reimburse NationsBank and NMS
at closing of the Permanent Facilities (or, if the Permanent Facilities are not
closed, on the date that the commitment of NationsBank to provide the Permanent
Facilities expires in accordance with the terms of this letter agreement) for
all reasonable out-of-pocket fees and expenses (including, but not limited to,
the reasonable fees, disbursements and other charges of Moore & Van Allen,
<PAGE> 5
Vestar Capital Partners III, L.P.
March 24, 1999
Page 5
PLLC, as counsel to NationsBank) incurred in connection with this letter and the
preparation of the definitive documentation for the Credit Facilities and the
other transactions contemplated hereby.
In the event that NationsBank or NMS becomes involved in any capacity in any
action, proceeding or investigation in connection with any matter contemplated
by this letter, the Sponsor will reimburse NationsBank and NMS for their
reasonable legal and other expenses (including the cost of any investigation and
preparation) as they are incurred by NationsBank or NMS. The Sponsor also agrees
to indemnify and hold harmless NationsBank, NMS and their affiliates and their
respective directors, officers, employees and agents (the "Indemnified Parties")
from and against any and all losses, claims, damages and liabilities, joint or
several, related to or arising out of any matters contemplated by this letter,
to the extent that such losses, claims, damages or liabilities do not result
from the gross negligence or willful misconduct of any Indemnified Party.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect notwithstanding the termination of this letter agreement or the
commitment of NationsBank and NMS hereunder; provided, that they shall terminate
upon execution and delivery of definitive financing documentation for the Credit
Facilities.
As described herein and in the Term Sheet, NMS will act as Sole Lead Arranger
and Sole Book Manager for the Credit Facilities. NationsBank reserves the right
to allocate, in whole or in part, to NMS certain fees payable to NationsBank in
such manner as NationsBank and NMS agree in their sole discretion. You
acknowledge and agree that NationsBank may share with any of its affiliates
(including specifically NMS) any information relating to the Credit Facilities,
the Target, the Sponsor and their subsidiaries and affiliates solely for
purposes of performing NationsBank's and NMS's obligations hereunder.
This letter agreement may not be assigned by the Sponsor without the prior
written consent of NationsBank and NMS.
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this letter agreement no later than the close of business on
March 26, 1999. This letter agreement will become effective upon your delivery
to us of executed counterparts of this letter agreement and the Fee Letter. This
commitment shall terminate if not so accepted by you prior to that time.
Following acceptance by you, this commitment will terminate (i) on May 31, 1999,
unless the Tender Offer Facility is closed by such time, and (ii) if the Tender
Offer Facility is closed in a timely manner, then on August 31, 1999, unless the
Permanent Facilities are closed by such time
Except as required by applicable law or court order, this letter and the Fee
Letter and the contents hereof and thereof shall not be disclosed by you to any
third party (with the exception of the Target and its advisors) without the
prior consent of NationsBank and NMS, other than to your attorneys, financial
advisors and accountants, in each case to the extent necessary in your
reasonable judgment.
<PAGE> 6
Vestar Capital Partners III, L.P.
March 24, 1999
Page 6
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet and the Fee
Letter, embodies the entire agreement and understanding among NationsBank, NMS
and the Sponsor with respect to the specific matters set forth herein and
supersedes all prior agreements and understandings relating to the subject
matter hereof. No party has been authorized by NationsBank or NMS to make any
oral or written statements inconsistent with this letter.
Notwithstanding any provision to the contrary contained in this letter or the
Fee Letter, the Sponsor shall be deemed released of its obligations under this
letter upon the execution of definitive financing documentation for the Credit
Facilities.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
Very truly yours,
NATIONSBANK, N.A.
By: /s/ Elton Vogel
-----------------------------------
Title: Managing Director
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Elton Vogel
-----------------------------------
Title: Managing Director
ACCEPTED AND AGREED TO:
VESTAR CAPITAL PARTNERS III, L.P.
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By: /s/ James Elrod, Jr.
Title:
Date:
<PAGE> 7
ANNEX I
SHERIDAN HEALTHCARE, INC.
SUMMARY OF TERMS & CONDITIONS
March 24, 1999
Unless otherwise defined herein, capitalized terms shall have the definitions
assigned to them in the Commitment Letter dated of even date herewith to which
this Summary of Terms & Conditions is attached.
==============================================================================
BORROWER: A newly formed company (the "Acquisition
Company") which will acquire (the
"Acquisition") outstanding stock of Sheridan
Healthcare, Inc. (the "Target") pursuant to
a tender offer (the "Tender Offer").
Subsequent to the Acquisition, the
Acquisition Company will be merged with and
into the Target, with the Target being the
surviving entity (the "Merger") and all then
existing funded indebtedness of the Target
shall be refinanced (the "Refinancing").
Prior to the Merger, the Acquisition Company
will be the Borrower and, subsequent to the
Merger, the Target (into which the
Acquisition Company shall have been merged)
will be the Borrower. The Acquisition
Company shall be a subsidiary of a newly
formed holding company (the "Parent").
GUARANTORS: Tender Offer Facility: The Tender Offer
Facility (hereinafter defined) shall be
guaranteed by the Parent.
Permanent Facilities: The Permanent
Facilities (hereinafter defined) shall be
guaranteed by the Parent. and all existing
and hereafter acquired direct and indirect
domestic subsidiaries of the Borrower upon
consummation of the Merger.
All guarantees shall be guarantees of
payment and not of collection.
AGENT: NationsBank, N.A. (the "Agent" or
"NationsBank") will act as sole and
exclusive administrative and collateral
agent. As such, NationsBank will negotiate
with the Borrower, act as the primary
contact for the Borrower and perform all
other duties associated with the role of
exclusive administrative agent. No other
agents or co-agents may be appointed without
the prior written consent of NationsBank and
NMS.
SOLE LEAD ARRANGER &
SOLE BOOK MANAGER: NationsBanc Montgomery Securities LLC
("NMS").
LENDERS: A syndicate of financial institutions
(including NationsBank) arranged by NMS,
which institutions shall be acceptable to
the Borrower and the Agent (collectively,
the "Lenders").
CREDIT FACILITIES: Tender Offer Facility
<PAGE> 8
An aggregate principal amount of up to $33.2
million of a senior tender offer facility
(the "Tender Offer Facility") to finance all
costs and expenses associated with the
purchase by the Acquisition Company of all
of the tendered stock and options of the
Target up to a tender price of $9.25 per
share.
Permanent Facilities An aggregate principal amount of up to $125
million of permanent senior secured credit
facilities (the "Permanent Facilities", and
together with the Tender Offer Facility, the
"Credit Facilities") will be available upon
consummation of the Merger under the
conditions hereinafter set forth and shall
consist of:
Revolving Credit Facility: A $50 million
revolving credit facility, which will
include a sublimit for the issuance of
standby and commercial letters of credit
(each a "Letter of Credit") and a sublimit
for the making of swingline loans (each a
"Swingline Loans"). Letters of Credit will
be issued by NationsBank (in such capacity,
the "Fronting Bank"), and each Lender will
purchase an irrevocable and unconditional
participation in each Letter of Credit.
Swingline Loans will be made by NationsBank,
and each Lender will purchase an irrevocable
and unconditional participation in each
Swingline Loan.
Term Loan Facility: $75 million term loan
facility. The Term Loan Facility will not be
available if the Alternate Financing
Structure is implemented.
PURPOSE: Tender Offer Facility: The proceeds of the
Tender Offer Facility shall be used to
finance the acquisition of tendered shares
of the Target ("Shares") upon the completion
of the Tender Offer.
Permanent Facilities: The proceeds of the
Permanent Facilities shall be used (i) to
refinance the Tender Offer Facility, (ii) to
finance a portion of the Merger and the
Refinancing, (iii) to pay fees and expenses
incurred in connection with the Tender
Offer, the Acquisition, the Merger and the
Refinancing in an amount (together with the
fees and expenses paid with proceeds of the
Tender Offer Facility) not to exceed $12
million and (iv) to provide for ongoing
working capital and general corporate
purposes of the Borrower and its
subsidiaries, including, without limitation,
permitted acquisitions; provided that, if
the Alternate Financing Structure is
implemented, proceeds of the Permanent
Facilities may be used to finance permitted
acquisitions only during the first three
years of the Permanent Facilities.
INTEREST RATES: Advances outstanding under the Credit
Facilities shall bear interest as set forth
on Addendum I hereto.
MATURITY: Tender Offer Facility: The Tender Offer
Facility shall terminate and all amounts
outstanding thereunder shall be due and
payable in full on the earlier to occur of
the closing of the Merger or on August 31,
1999.
<PAGE> 9
Permanent Facilities: The Revolving Credit
Facility shall terminate and all amounts
outstanding thereunder shall be due and
payable in full 5 years from closing of the
Permanent Facilities. If the Alternate
Financing Structure is implemented, (i) the
Revolving Credit Facility shall be
permanently reduced 36 months from closing
of the Permanent Facilities by an amount
equal to all outstanding borrowings (but not
the undrawn amount of Letters of Credit)
thereunder at such time and (ii) all
outstanding advances (but not the undrawn
amount of Letters of Credit) under the
Revolving Credit Facility made during the
first 36-month period following closing of
the Permanent Facilities shall be subject to
repayment according to the Scheduled
Amortization.
The Term Loan Facility shall be subject to
repayment according to the Scheduled
Amortization, with the final payment of all
amounts outstanding, plus accrued interest,
being due 6 years from closing of the
Permanent Facilities.
AVAILABILITY: Tender Offer Facility: Loans made under the
Tender Offer Facility shall be available in
a single borrowing upon the completion of
the Tender Offer.
Permanent Facilities: Loans under the
Revolving Credit Facility may be made, and
Letters of Credit may be issued, subject to
availability under the aggregate committed
amount for the Revolving Credit Facility.
Loans made under the Term Loan Facility will
be available in a single borrowing at
closing of the Permanent Facilities;
provided, that the Term Loan Facility will
not be available if the Alternate Financing
Structure is implemented.
SCHEDULED
AMORTIZATION: Revolving Credit Facility: If the Alternate
Financing Structure is implemented, all
advances under the Revolving Credit Facility
made during the first 36-month period
following closing of the Permanent
Facilities will be subject to quarterly
amortization of principal commencing in the
fourth year from closing of the Permanent
Facilities in amount equal to 5% of the
aggregate amount all outstanding borrowings
(but not the undrawn amount of Letters of
Credit) under the Revolving Credit Facility
at the end of such 36-month period, with the
balance payable at maturity (with respect to
the Revolving Credit Facility, the
"Scheduled Amortization").
Term Loan Facility: The Term Loan Facility
will be subject to quarterly amortization of
principal in amounts to be determined (with
respect to the Term Loan Facility, the
"Scheduled Amortization").
SECURITY: Tender Offer Facility: Concurrently with
consummation of the Acquisition, the Agent
(on behalf of the Lenders) shall receive a
first priority perfected security interest
in all of the Shares purchased in connection
with the Tender Offer.
<PAGE> 10
Permanent Facilities: Concurrently with
consummation of the Merger, the Agent (on
behalf of the Lenders) shall receive a first
priority perfected security interest in (i)
100% of the issued and outstanding capital
stock of the Borrower, (ii) 100% of the
issued and outstanding capital stock of each
of the direct and indirect domestic
subsidiaries of the Borrower, (iii) 65% of
the issued and outstanding voting capital
stock (or such greater percentage which
would not result in material adverse tax
consequences) and 100% of the issued and
outstanding non-voting capital stock of each
direct foreign subsidiary of the Borrower or
any of its domestic subsidiaries and (iv)
substantially all other present and future
assets and properties of the Borrower and
the Guarantors (including, without
limitation, accounts receivable, inventory,
real property, machinery, equipment,
contracts, trademarks, copyrights, patents,
license agreements, and general intangibles,
but excluding certain non-material real
property to be determined), subject to
permitted liens and, in the case of leases
of real property, license agreements and
other like arrangements requiring the
consent of third parties thereto, subject to
and only to the extent that any such
consents required from such third parties
are actually obtained.
The foregoing collateral (collectively, the
"Collateral") shall ratably secure the
Credit Facilities and any interest rate
swap/foreign currency swap or similar
agreements with a Lender (or an affiliate of
a Lender) under the Credit Facilities.
MANDATORY
PREPAYMENTS
AND COMMITMENT
REDUCTIONS: If at any time, the outstanding principal
amount of loans under the Tender Offer
Facility exceeds 50% of the value of the
Shares pledged to secure such loans, the
Borrower immediately shall prepay the Tender
Offer Facility in an amount sufficient to
eliminate such excess.
The Permanent Facilities will be prepaid by
an amount equal to (a) 100% of the net cash
proceeds of all non-ordinary course asset
sales by the Parent, the Borrower or any
subsidiary (including stock of
subsidiaries), subject to baskets and
reinvestment provisions to be agreed upon;
(b) if the Alternate Financing Structure is
implemented, 50% of Excess Cash Flow (to be
defined) pursuant to a cash sweep
arrangement commencing after the third
anniversary of closing of the Permanent
Facilities; (c) 100% of the net cash
proceeds from the issuance of any funded
debt for borrowed money by the Parent, the
Borrower or any subsidiary (other than
certain permitted funded debt for borrowed
money) and (d) 100% of the net cash proceeds
from the issuance of equity (other than
sponsor equity) by the Parent, the Borrower
or any subsidiary. If the Alternate
Financing Structure is not implemented,
prepayments shall be applied to reduce the
Term Loan Facility, pro rata with respect to
each remaining installment of principal;
provided, however, that with respect to
<PAGE> 11
clause (a) above, any prepayment shall be
applied to reduce ratably the Term Loan and
the commitments under the Revolving Credit
Facility. If the Alternate Financing
Structure is implemented, (i) no prepayments
shall be required under clauses (b), (c) and
(d) above prior to the third anniversary of
closing of the Permanent Facilities and (ii)
any prepayment shall be applied to reduce
the commitments under the Revolving Credit
Facility.
OPTIONAL
PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Credit Facilities may be prepaid (and
commitments thereunder may be permanently
reduced) voluntarily in whole or in part at
any time without penalty, subject to
reimbursement of the Lenders' breakage and
redeployment costs in the case of prepayment
of LIBOR borrowings.
CONDITIONS
PRECEDENT
TO CLOSING: The initial borrowings under the Credit
Facilities will be subject to satisfaction
of the following conditions precedent:
(i) The negotiation, execution and delivery of
definitive documentation with respect to the
Credit Facilities satisfactory to NMS and
the Agent.
(ii) In the case of the initial borrowings under
the Tender Offer Facility, the Agent's
satisfactory review of (a) the offer to
purchase the Shares and the related
documentation entered into in connection
with the Tender Offer and (b) the merger
agreement (including all schedules and
exhibits thereto) regarding the Transaction
(the "Merger Agreement") which shall provide
for aggregate costs of the Transaction
(including all fees and expenses (in an
amount not to exceed $12 million) and the
repayment in full of all funded debt of the
Target and its subsidiaries immediately
prior to the Merger) not in excess of $165
million (before giving effect to any
acquisitions by the Target reasonably
acceptable to the Agent after the date
hereof).
(iii) In the case of the initial borrowings under
the Tender Offer Facility, the Agent's
satisfaction that (a) the Tender Offer shall
have been consummated upon satisfaction of
any material conditions specified therein
and at least a majority of the voting power
(on a fully diluted basis), on the date of
purchase, of all securities of the Target
entitled to vote generally in the election
of directors or in a merger shall have been
purchased in connection with the Tender
Offer (or shall be purchased with such
initial borrowings under the Tender Offer
Facility), and (b) no more than $9.25 shall
have been paid for any
<PAGE> 12
Share and the purchase price for 100% of the
Shares (on a fully diluted basis) in
connection with the Merger will not exceed
$66.3 million.
(iv) In the case of the initial borrowings under
the Permanent Facilities, the Merger and the
Refinancing (a) shall have been consummated
in all material respects in accordance with
the terms of the Merger Agreement and in
compliance with applicable law and
regulatory approvals, and all conditions
precedent to the obligations of the buyer
thereunder shall have been satisfied and (b)
the Merger Agreement shall not have been
altered, amended or otherwise changed or
supplemented in any material respect or any
material condition therein waived, without
the prior written consent of the Agent.
(v) The corporate capital and ownership
structure (including articles and by-laws),
equityholder agreements and management of
the Parent, the Borrower, the Target and
their respective subsidiaries (after giving
effect to the Acquisition and Merger),
including without limitation employment
contracts, equity ownership interests and
key man life insurance with key executives,
shall be reasonably satisfactory to the
Agent. Without limiting the generality of
the above, the Agent shall be satisfied that
the Borrower shall have received (a) in the
case of the initial borrowings under the
Tender Offer Facility, a cash capital
contribution to the Parent (which shall be
concurrently contributed by the Parent to
the Borrower) from the Sponsor and existing
management of an amount equal to the sum of
(1) 50% of the value of the Shares purchased
pursuant to the Tender Offer plus (2) all
expenses incurred in connection with the
Tender Offer and (b) in the case of the
initial borrowings under the Permanent
Facilities, (1) a cash capital contribution
to the Parent (which shall be concurrently
contributed by the Parent to the Borrower)
from the Sponsor and existing management of,
together with the cash capital contribution
referred to in the immediately clause (a),
approximately $63.1 million in common equity
(at least $60.1 million of which shall be
contributed by the Sponsor) and (2) unless
the Alternate Financing Structure is to be
implemented, at least $20 million from the
issuance by the Borrower (or, at the option
of the Sponsor, the Parent) to the Sponsor
of the Junior Subordinated Debt or common or
preferred equity in the Borrower (or, at the
option of the Sponsor, the Parent), in
either case under terms satisfactory to the
Agent in its reasonable discretion (it being
understood that if such Junior Subordinated
Debt or common or preferred equity is issued
by the Parent, the proceeds thereof shall be
concurrently contributed by the Parent to
the
<PAGE> 13
Borrower). If the Alternate Financing
Structure is implemented, the terms of the
Senior Subordinated Debt shall be
satisfactory to the Agent in its reasonable
discretion.
(vi) The Agent shall have received and, in each
case, be reasonably satisfied with (a)
interim monthly financial statements for
each fiscal month of the Target after
December 31, 1998, (b) in the case of the
initial borrowings under the Permanent
Facilities, a pro forma consolidated balance
sheet of the Borrower as of closing of the
Permanent Facilities giving effect to the
Merger and the financings and other
transactions contemplated hereby and
reflecting estimated purchase accounting
adjustments, prepared by independent public
accountants of recognized national standing,
and (c) such other information relating to
the Target and its subsidiaries or the
Transaction as the Agent may reasonably
require.
(vii) There shall not have occurred a material
adverse change since December 31, 1998 in
the business, assets, liabilities (actual or
contingent), operations, condition
(financial or otherwise) or prospects of the
Borrower and its subsidiaries or in the
facts and information regarding such
entities as represented to date.
(viii) In the case of the initial borrowings under
the Permanent Facilities, the Agent shall
have received a satisfactory certificate
from the chief financial officer of the
Borrower as to the financial condition and
solvency of each of the Borrower and the
Guarantors (after giving effect to the
Acquisition and Merger and the incurrence of
indebtedness related thereto).
(ix) The Agent shall have received (a)
satisfactory opinions of counsel to the
Borrower and the Guarantors (which shall
cover, among other things, authority,
legality, validity, binding effect and
enforceability of the documents for the
Credit Facilities) and such resolutions,
certificates and other documents as the
Agent shall reasonably require and (b)
satisfactory evidence that, upon completion
of the Merger, the Agent (on behalf of the
Lenders) holds or will hold a perfected,
first priority lien in all collateral for
the Credit Facilities, subject to no other
liens except for permitted liens to be
determined.
(x) (a) In the case of borrowing under the
Tender Offer Facility, receipt of all
governmental, equityholder and third party
consents (including Hart-Scott-Rodino
clearance and the consent, if necessary, of
any existing lenders and/or bondholders of
the Target to the extent that indebtedness
owing to such lenders and/or bondholders is
to remain in place after the Tender Offer)
and approvals necessary in connection with
the Tender Offer and the related financings
and other transactions contemplated hereby
and expiration of all applicable waiting
periods
<PAGE> 14
without any action being taken by any
authority that could restrain, prevent or
impose any material adverse conditions on
the Acquisition Company, the Target and its
subsidiaries taken as a whole, the Tender
Offer or such related financings or other
such transactions or that could seek or
threaten any of the foregoing, and no law or
regulation shall be applicable which in the
reasonable judgment of the Agent could have
such effect and (b) in the case of the
initial borrowings under the Permanent
Facilities, receipt of all material
governmental, shareholder and third party
consents and approvals necessary or, in the
reasonable discretion of the Agent,
desirable in connection with the
consummation of the Merger and the related
financings and other transactions
contemplated hereby and expiration of all
applicable waiting periods without any
action being taken by any authority that
could restrain, prevent or impose any
material adverse conditions on the Borrower
and its subsidiaries taken as a whole, the
Merger or such related financings or other
transactions, and no law or regulation shall
be applicable which in the reasonable
judgment of the Agent could have such
effect.
(xi) The absence of any action, suit,
investigation or proceeding pending in any
court or before any arbitrator or
governmental authority that could reasonably
be expected to have a material adverse
effect on the financial condition of the
Borrower and its subsidiaries taken as a
whole or any transaction contemplated hereby
or on the ability of the Borrower and the
Guarantors taken as a whole to perform their
respective obligations under the documents
to be executed in connection with the Credit
Facilities.
(xii) The Target and its subsidiaries shall be in
compliance with all existing material
financial obligations (after giving effect
to the Acquisition and Merger).
(xiii) In the case of the initial borrowings under
the Permanent Facilities, the Agent shall be
reasonably satisfied that the amount of
committed financing available to the
Borrower shall be sufficient to meet the
ongoing financing needs of the Borrower and
its subsidiaries after giving effect to the
Transaction and, immediately after giving
effect to the Acquisition and the Merger and
the related borrowings under the Revolving
Credit Facility, availability under the
Revolving Credit Facility shall be no less
than (a) if the Alternate Financing
Structure is not implemented, $50 million or
(b) if the Alternate Financing Structure is
implemented, $45 million.
(xiv) The Borrower shall have paid to the Lenders
and the Agent all fees and expenses due and
payable at closing of the Permanent
Facilities.
<PAGE> 15
REPRESENTATIONS &
WARRANTIES: Tender Offer Facility: Usual and customary
for senior tender offer facilities of this
type.
Permanent Facilities: Usual and customary
for permanent senior secured credit
facilities of this type (subject to
appropriate materiality and reasonableness
limitations), to include without limitation:
(i) corporate status; (ii) corporate power
and authority/enforceability; (iii) no
violation of law or contracts or
organizational documents; (iv) no material
litigation; (v) correctness of specified
financial statements and no material adverse
change since December 31, 1998; (vi) no
required governmental or third party
approvals; (vii) use of proceeds/compliance
with margin regulations; (viii) status under
Investment Company Act; (ix) ERISA; (x)
environmental matters; (xi) perfected liens
and security interests; (xii) payment of
taxes, (xiii) consummation of the
Transaction and (xiv) Year 2000 assurances.
COVENANTS: Tender Offer Facility: Usual and customary
for senior tender offer facilities of this
type.
Permanent Facilities: Usual and customary
for permanent senior secured credit
facilities of this type (subject to
materiality limitations, baskets and
carve-outs to be negotiated), to include
without limitation: (i) delivery of
financial statements and other reports; (ii)
delivery of compliance certificates: (iii)
delivery of notices of default, material
litigation and material governmental and
environmental proceedings; (iv) compliance
with laws; (v) payment of taxes; (vi)
maintenance of insurance; (vii) limitation
on liens and negative pledges; (viii)
limitations on mergers, consolidations and
sales of assets; (ix) limitations on
incurrence of debt (specifically excluding
the Junior Subordinated Debt, if any (and
subordinated guarantees thereof by the
Guarantors), and, if the Alternate Financing
Structure is implemented, the Senior
Subordinated Debt (and subordinated
guarantees thereof by the Guarantors),
whether entered into at closing of the
Permanent Facilities or thereafter); (x)
limitations on cash dividends and stock
redemptions and the redemption and/or
prepayment of other debt; (xi) limitations
on investments and acquisitions (including
the satisfaction of the incurrence covenants
set forth below); (xii) ERISA; (xiii)
limitation on transactions with affiliates
(specifically excluding sponsor fees in
amounts to be determined); (xiv) limitation
on capital expenditures; and (xv) upon
completion of the Merger, delivery of
collateral documentation and opinions as to
the perfected security interest of the Agent
in the Collateral.
Financial covenants under the Permanent
Facilities to include (but not limited to):
(i) if the Alternate Financing Structure is
not implemented:
o Maintenance on a rolling four quarter
basis of a Maximum Senior Leverage Ratio
(total funded senior debt/EBITDA)
<PAGE> 16
not to exceed 4.0 to 1.0 with step-downs
to be determined beginning on the third
anniversary of closing of the Permanent
Facilities,
o Maintenance on a rolling four quarter
basis of a Minimum Fixed Charge Coverage
Ratio (EBITDA less capital expenditures
less cash taxes)/(interest expense +
scheduled principal repayments) with
step-ups to be determined beginning on
the third anniversary of closing of the
Permanent Facilities, and
o Maintenance on a rolling four quarter
basis of a Minimum Interest Coverage
Ratio (EBITDA/interest expense) with
step-ups to be determined beginning on
the third anniversary of closing of the
Permanent Facilities.
(ii) if the Alternate Financing Structure is
implemented:
o Maintenance on a rolling four quarter
basis of a Maximum Senior Leverage Ratio
not to exceed 3.5 to 1.0 with step-downs
to be determined beginning on the third
anniversary of closing of the Permanent
Facilities,
o Maintenance on a rolling four quarter
basis of a Maximum Total Leverage Ratio
(total funded debt/EBITDA) not to exceed
5.0 to 1.0 with step-downs to be
determined beginning on the third
anniversary of closing of the Permanent
Facilities, and
o Maintenance on a rolling four quarter
basis of a Minimum Interest Coverage
Ratio with step-ups to be determined
beginning on the third anniversary of
closing of the Permanent Facilities.
Incurrence covenants for permitted
acquisitions under the Permanent Facilities
(calculated on a pro forma basis giving
effect to such acquisition) to include (but
not limited to):
(i) if the Alternate Financing Structure is
not implemented:
o Maximum Senior Leverage Ratio not to
exceed 3.5 to 1.0, and
o Minimum Interest Coverage Ratio to be
determined.
(ii) if the Alternate Financing Structure is
implemented:
o Maximum Senior Leverage Ratio not to
exceed 3.0 to 1.0, and
o Maximum Total Leverage Ratio not to
exceed 4.5 to 1.0.
The Parent shall have agreed that it will
not engage in any business, activity or
operation other than owning and holding the
capital stock of the Borrower,
<PAGE> 17
guaranteeing the Credit Facilities and
pledging its assets (including the capital
stock of the Borrower) as security therefor,
and activities directly related thereto. The
Parent shall not be permitted to merge with
or into any other person.
EVENTS OF DEFAULT: Tender Offer Facility: Usual and customary
for senior tender offer facilities of this
type.
Permanent Facilities: Usual and customary
for permanent senior secured credit
facilities of this type (subject to
materiality and grace periods to be
negotiated), and to include, without
limitation, (i) nonpayment of principal,
interest, fees or other amounts, (ii)
violation of covenants, (iii) material
inaccuracy of representations and
warranties, (iii) cross-default to other
material agreements and indebtedness, (iv)
bankruptcy or insolvency, (v) material
judgments, (vi) ERISA, (vii) actual or
asserted invalidity of any loan documents or
security interests, or (viii) Change in
Control.
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to make
assignments in minimum amounts of $5 million
to other financial institutions approved by
the Borrower and the Agent, which approval
shall not be unreasonably withheld. Lenders
will be permitted to sell participations
with voting rights limited to significant
matters such as changes in amount, reduction
in rate and extension of maturity date. An
assignment fee of $3,500 is payable by the
Lender to the Agent upon any such assignment
occurring (including, but not limited to an
assignment by a Lender to another Lender).
WAIVERS & AMENDMENTS: Amendments and waivers
of the provisions of the loan agreement and
other definitive credit documentation will
require the approval of Lenders holding
loans and commitments representing more than
50% of the aggregate amount of loans and
commitments under the Credit Facilities,
except that the consent of all the Lenders
affected thereby shall be required with
respect to (i) increases in commitment
amounts, (ii) reductions of principal,
interest, or fees, (iii) extensions of final
maturities, (iv) releases of all or
substantially all collateral and (v)
releases of all or substantially all
guarantors.
INDEMNIFICATION: In the definitive documentation for the
Credit Facilities, the Borrower shall
indemnify the Lenders from and against all
losses, liabilities, claims, damages or
expenses relating to their loans, the
Borrower's use of loan proceeds or the
commitments, including but not limited to
reasonable attorneys' fees and settlement
costs, but only to the extent that such
losses, liabilities, claims, damages or
expenses do not result primarily from the
gross negligence or willful misconduct of
the indemnified party.
CLOSING: With respect to the Tender Offer Facility,
on or before May 31, 1999, and with respect
to the Permanent Facilities, on or before
August 31, 1999.
<PAGE> 18
GOVERNING LAW: New York.
FEES/EXPENSES: As outlined in ADDENDUM I.
OTHER: This term sheet is intended as an outline
only and does not purport to summarize all
the conditions, covenants, representations,
warranties and other provisions which would
be contained in definitive legal
documentation for the Credit Facilities
contemplated hereby. Each of the Borrower,
the Guarantors, the Agent and the Lenders
shall waive its right to a trial by jury.
<PAGE> 1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
VESTAR/CALVARY HOLDINGS, INC.,
VESTAR/CALVARY, INC.
AND
SHERIDAN HEALTHCARE, INC.
DATED AS OF MARCH 24, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE OFFER
1.1 The Offer................................................... 2
1.2 Company Action.............................................. 2
ARTICLE II
THE MERGER
2.1 The Merger; Filing and Effective Time....................... 3
2.2 Closing..................................................... 4
2.3 Effects of the Merger....................................... 4
2.4 Certificate of Incorporation; By Laws....................... 4
2.5 Directors and Officers...................................... 4
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF COMPANY AND THE MERGER SUB
3.1 Effect on Capital Stock..................................... 4
3.2 Company Options............................................. 5
3.3 Dissenters' Rights.......................................... 5
3.4 Paying Agent................................................ 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE PURCHASER
4.1 Existence, Good Standing, Corporate Authority............... 6
4.2 Authorization of Agreement and Other Documents.............. 7
4.3 Non-Contravention........................................... 7
4.4 Disclosure Documents........................................ 7
4.5 Brokers..................................................... 8
4.6 Commitment Letters.......................................... 8
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.1 Organization, Standing and Qualification.................... 8
5.2 Capitalization.............................................. 8
5.3 Subsidiaries................................................ 9
5.4 Constituent Documents....................................... 9
5.5 Authorization of Agreement.................................. 9
5.6 Non-Contravention........................................... 9
5.7 Compliance with Laws........................................ 10
5.8 Commission Documents........................................ 10
5.9 Insurance................................................... 10
5.10 Litigation.................................................. 11
5.11 Taxes....................................................... 11
5.12 ERISA....................................................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.13 Environmental Matters; OSHA................................. 13
5.14 Interim Conduct of Business................................. 13
5.15 No Brokers.................................................. 14
5.16 Disclosure Documents........................................ 14
5.17 Billing and Coding.......................................... 14
5.18 Properties.................................................. 15
5.19 Material Contract Defaults; Non-Compete..................... 15
5.20 Transactions with Affiliates................................ 16
5.21 Vote Required; State Takeover Statutes...................... 16
5.22 1998 Financial Statements................................... 16
5.23 Year 2000 Compliance........................................ 16
ARTICLE VI
COVENANTS
6.1 Interim Operations.......................................... 17
6.2 Stockholders Meeting........................................ 19
6.3 Proxy Statement, Etc. ...................................... 20
6.4 Company Board Representation; Section 14(f)................. 20
6.5 Inspection of Records....................................... 21
6.6 Publicity................................................... 21
6.7 Further Action; Reasonable Best Efforts..................... 21
6.8 Employee Benefit Plans...................................... 22
6.9 Indemnification of Directors and Officers of the Company.... 22
6.10 No Solicitations............................................ 23
6.11 Disposition of Litigation................................... 24
6.12 Financing-Related Cooperation............................... 24
6.13 Stop Transfer Order......................................... 24
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the 24
Merger......................................................
7.2 Additional Condition to the Obligations of Holdings and the 25
Purchaser to Effect the Merger..............................
ARTICLE VIII
TERMINATION AND WAIVER
8.1 Termination................................................. 25
8.2 Termination Fees and Expenses............................... 26
8.3 Effect of Termination and Abandonment....................... 27
8.4 Extension; Waiver........................................... 28
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements... 28
9.2 Notices..................................................... 28
9.3 Assignment, Binding Effect.................................. 29
9.4 Entire Agreement............................................ 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
9.5 Amendment................................................... 29
9.6 Governing Law............................................... 29
9.7 Counterparts................................................ 29
9.8 Headings.................................................... 29
9.9 Interpretation.............................................. 29
9.10 Waivers..................................................... 29
9.11 Incorporation of Exhibits................................... 30
9.12 Severability................................................ 30
9.13 Enforcement of Agreement.................................... 30
</TABLE>
<TABLE>
<S> <C>
Annex A Offer Conditions
Exhibit A Amended and Restated Certificate of Incorporation of the
Company
Exhibit B Merger Sub By-laws
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
PLAN AND AGREEMENT OF MERGER (the "Agreement") dated as of March 24, 1999,
among VESTAR/CALVARY HOLDINGS, INC., a Delaware corporation ("Holdings"),
VESTAR/CALVARY, INC., a Delaware corporation and a wholly owned subsidiary of
Holdings (the "Purchaser"), and SHERIDAN HEALTHCARE, INC., a Delaware
corporation (the "Company") (the Purchaser and Company being sometimes
collectively referred to herein as the "Constituent Corporations").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has determined that it is
advisable and in the best interests of the Company and the stockholders of the
Company to enter into this Agreement providing for the merger (the "Merger") of
Purchaser into the Company in accordance with the General Corporation Law of the
State of Delaware ("DGCL"), upon the terms and subject to the conditions set
forth herein;
WHEREAS, the Boards of Directors of Holdings and Purchaser have each
approved the Merger in accordance with the DGCL upon the terms and subject to
the conditions set forth herein;
WHEREAS, as promptly as practicable (but in no event later than five
business days after the public announcement of the execution hereof), the
Purchaser shall commence (within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) an offer (the "Offer") to
purchase for cash all of the outstanding shares of common stock, par value $0.01
per share ("Voting Common Stock"), and Class A Common Stock, par value $0.01 per
share ("Class A Common Stock"), of the Company (collectively, the shares of
Voting Common Stock and Class A Common Stock being referred to herein as the
"Shares" or the "Company Common Stock"), of the Company at a price of $9.25 per
Share, net to the seller in cash, subject to the conditions set forth in Annex A
hereto;
WHEREAS, the Board of Directors of the Company has (i) determined that the
consideration to be paid for each Share in the Offer and in the Merger is fair
to and in the best interests of the stockholders of the Company and (ii)
resolved to recommend acceptance of the Offer and the Merger and adoption of
this Agreement by such stockholders;
WHEREAS, as a condition to their willingness to enter into this Agreement
and consummate the transactions contemplated hereby, Holdings and the Purchaser
have required each of Mitchell Eisenberg, Lewis Gold, Michael Schundler and Jay
Martus (the "Senior Stockholders") and Gilbert Drozdow and Robert Coward
(collectively with the Senior Stockholders, the "Stockholders"),
contemporaneously with the execution and delivery of this Agreement, to enter
into (i) in the case of the Senior Stockholders, an employment agreement with
the Company to be effective upon the purchase of Shares pursuant to the Offer,
(ii) in the case of the Senior Stockholders and Gilbert Drozdow, a Stockholders
Agreement with each other and Holdings and the other parties thereto (the
"Stockholders Agreement") and (iii) in the case of the Senior Stockholders and
Gilbert Drozdow, a Subscription and Tender Agreement with Holdings and, in the
case of Robert J. Coward, a Tender Agreement (the "Subscription and Tender
Agreements") to be effective upon the purchase of Shares pursuant to the Offer
pursuant to which, among other things, each of them (x) other than Robert
Coward, shall purchase shares of common stock of Holdings following the purchase
of Shares pursuant to the Offer, (y) shall be granted following the consummation
of the Merger options to purchase common stock of Holdings and (z) has agreed to
tender all of his Shares pursuant to the Offer (such employment agreements,
Stockholders Agreement, Subscription and Tender Agreements and related documents
collectively referred to herein as the "Stockholder Documents"); and
WHEREAS, the Board of Directors of the Company has approved the merger (the
"Merger") of Purchaser into the Company in accordance with the DGCL upon the
terms and subject to the conditions set forth herein.
<PAGE> 6
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE OFFER
1.1 The Offer. (a) Provided that this Agreement shall not have been
terminated in accordance with Article VIII and no event shall have occurred and
no circumstance shall exist which would result in a failure to satisfy any of
the conditions or events set forth in Annex A hereto (the "Offer Conditions"),
Purchaser shall commence the Offer as soon as practicable after the date hereof,
and in any event within five business days from the date hereof. The obligation
of Purchaser to accept for payment Shares tendered shall be subject to the
satisfaction of the Offer Conditions. Purchaser expressly reserves the right, in
its sole discretion, to waive any such condition and make any other changes in
the terms and conditions of the Offer, provided that, unless previously approved
by the Company in writing, (i) Purchaser may not amend or waive the Minimum
Condition (as defined in Annex A), (ii) no change may be made which decreases
the price per Share payable in the Offer, (iii) there shall be no change to the
form of consideration payable in the Offer (other than by adding consideration),
(iv) there shall be no reduction in the maximum number of Shares to be purchased
in the Offer, or (v) there shall be no imposition of any condition to the Offer
in addition to those set forth herein which is materially adverse to holders of
the Shares. Purchaser covenants and agrees that, subject to the terms and
conditions of this Agreement, including the Offer Conditions, it will accept for
payment and pay for Shares validly tendered and not withdrawn pursuant to the
Offer as promptly as reasonably practicable; provided, that Purchaser shall
extend the Offer for any period required by any rule, regulation, interpretation
or position of the Commission or the staff thereof applicable to the Offer; and
provided that Purchaser shall have the right, in its sole discretion, to extend
the Offer for up to five business days, notwithstanding the prior satisfaction
of the Offer Conditions, in order to attempt to satisfy the requirements of
Section 253 of the DGCL. The initial expiration date of the Offer shall be 20
business days from the commencement of the Offer in accordance with applicable
law. Subject to the foregoing, it is agreed that the Offer Conditions are for
the benefit of Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such condition (including any action or
inaction by Purchaser or Holdings not inconsistent with the terms hereof) or may
be waived by Purchaser, in whole or in part at any time and from time to time,
in its sole discretion.
(b) As soon as reasonably practicable after the date hereof, and in any
event within five business days from the date hereof, Purchaser and Holdings
shall file their Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1")
and Schedules 13D and 13E-3 with respect to the Offer with the Securities and
Exchange Commission (the "Commission"). The Schedule 14D-1 will contain an Offer
to Purchase and forms of the related letter of transmittal (which Schedule
14D-1, Offer to Purchase and other documents, together with any further
supplements or amendments thereto, are referred to herein collectively as the
"Offer Documents"). Holdings, Purchaser and the Company each agrees promptly to
correct any information provided by it for use in the Offer Documents that shall
have become false or misleading in any material respect, and Holdings and
Purchaser further agree to take all steps necessary to cause the Schedule 14D-1
as so corrected to be filed with the Commission and the other Offer Documents as
so corrected to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. The Company and its
counsel shall be given a reasonable opportunity to review and comment on the
Offer Documents prior to their filing with the Commission. Holdings and
Purchaser agree to provide the Company with any comments that may be received
from the Commission or its staff with respect to the Offer Documents promptly
after receipt thereof.
(c) Notwithstanding any other provision contained herein, the Offer shall
terminate upon termination of this Agreement pursuant to Article VIII.
1.2 Company Action. (a) The Company hereby approves of and consents to
the Offer and represents and warrants that: (i) its Board of Directors, at a
meeting duly called and held on March 24, 1999, has unanimously (excluding
directors who would be considered "interested directors" under Section 144 of
the DGCL and who abstained) (A) determined that this Agreement and the
transactions contemplated hereby,
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including each of the Offer and the Merger, are fair to and in the best
interests of the holders of Shares, (B) approved this Agreement and the Offer
and the Merger and the other transactions contemplated hereby, (C) declared the
Merger to be advisable and directed that the Merger be submitted for
consideration at a special meeting of the stockholders of the Company, (D)
resolved to recommend that the stockholders of the Company accept the Offer,
tender their Shares to Purchaser thereunder and adopt this Agreement and (E)
approved this Agreement and the Stockholder Documents and the transactions
contemplated hereby and thereby for purposes of Section 203 of the DGCL; and
(ii) Salomon Smith Barney Inc. and Bowles, Hollowell Conner & Co. (the
"Financial Advisors") each has delivered to the Board of Directors of the
Company its written opinion that the consideration to be received by holders of
Shares (other than Holdings and its affiliates) pursuant to each of the Offer
and the Merger is fair to such holders from a financial point of view. The
Company has been authorized by the Financial Advisors to permit, subject to
prior review and consent by such Financial Advisors (such consent not to be
unreasonably withheld), the inclusion of such fairness opinions (or a references
thereto) in the Offer Documents and in the Schedule 14D-9 referred to below and
the Proxy Statement (as defined in Section 5.16). The Company hereby consents to
the inclusion in the Offer Documents of the recommendations of the Company's
Board of Directors described in this Section 1.2(a).
(b) The Company shall file with the Commission, contemporaneously with the
filing of the Schedule 14D-1 pursuant to Section 1.1, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing the
recommendations of the Company's Board of Directors described in Section
1.2(a)(i) and shall promptly mail the Schedule 14D-9 to the stockholders of the
Company, and the Board of Directors of the Company shall not withdraw, amend or
modify in a manner adverse to Holdings or the Purchaser such recommendations (or
announce publicly its intention to do so); provided that prior to the purchase
of Shares pursuant to the Offer, the Company shall not be required to make such
filing with such recommendations or make such mailing and the Board of Directors
shall be permitted to withdraw, amend or modify its recommendations (or publicly
announce its intention to do so) in a manner adverse to Holdings or the
Purchaser if: (1) the Company has complied with Section 6.10, (2) a Superior
Proposal (as defined in Section 6.10) shall have been proposed by any person
other than Holdings or the Purchaser and such proposal is pending at the time of
such action; (3) the Board of Directors shall have concluded in good faith,
after consultation with its outside legal counsel, that the Board of Directors
is required to withdraw, amend or modify such recommendations in order to comply
with its fiduciary duties to the stockholders of the Company under applicable
law; and (4) the Company shall have notified Holdings of such Superior Proposal
at least two business days in advance of such action. The Schedule 14D-9 and all
amendments thereto will comply in all material respects with the Exchange Act
and the rules and regulations promulgated thereunder. The Company, Holdings and
Purchaser each agrees promptly to correct any information provided by it for use
in the Schedule 14D-9 that shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the Commission and disseminated
to holders of Shares, in each case as and to the extent required by applicable
federal securities laws.
(c) In connection with the Offer, if requested by Purchaser, the Company
shall promptly furnish Purchaser with mailing labels, security position
listings, any non-objecting beneficial owner lists and any available listings or
computer files containing the names and addresses of the record holders of
Shares, each as of a recent date, and shall promptly furnish Purchaser with such
additional information (including but not limited to updated lists of
stockholders, mailing labels, security position listings and non-objecting
beneficial owner lists) and such other assistance as Parent, Purchaser, Holdings
or their agents may reasonably require in communicating the Offer to the record
and beneficial holders of Shares.
ARTICLE II
THE MERGER
2.1 The Merger; Filing and Effective Time.
(a) Upon the terms and subject to the conditions of this Agreement and in
accordance with the DGCL, at the Effective Time, the Purchaser shall be merged
into the Company. As a result of the Merger, the
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separate corporate existence of the Purchaser shall cease and the Company shall
be the surviving corporation (the "Surviving Corporation") following the
effectiveness of the Merger.
(b) The parties hereto shall cause the Merger to be consummated by filing a
certificate of merger or, if applicable, a certificate of ownership and merger
with the Secretary of State of the State of Delaware, in such form as required
by and executed in accordance with the relevant provisions of the DGCL (the date
and time of the filing of such certificate with the Secretary of State of the
State of Delaware (or such later time as is agreed to by the parties hereto and
set forth therein) being the "Effective Time").
2.2 Closing. The closing of the Merger (the "Closing") will take place as
soon as practicable after satisfaction or waiver of the conditions set forth in
Article VII (the "Closing Date"), at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York 10017, unless another date or place is
agreed to in writing by the parties hereto.
2.3 Effects of the Merger. The Merger shall have the effects set forth in
the applicable provisions of the DGCL.
2.4 Certificate of Incorporation; By Laws.
(a) At the Effective Time, the certificate of incorporation of the Company
as in effect immediately prior to the Effective Time shall be amended so as to
read in its entirety in the form set forth as Exhibit A hereto and, as so
amended, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter further amended as provided therein and under the DGCL.
(b) At the Effective Time, the By-laws of the Purchaser as in effect
immediately prior to the Effective Time in the form set forth as Exhibit B
hereto shall be the By-laws of the Surviving Corporation following the Merger
and thereafter may be amended or repealed in accordance with their terms or the
certificate of incorporation of the Surviving Corporation following the Merger
and as provided under the DGCL.
2.5 Directors and Officers. The directors of the Purchaser immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation following the Merger, each to hold office in accordance with the
certificate of incorporation and by-laws of the Surviving Corporation following
the Merger, and the officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation following the
Merger, in each case until their respective successors are duly elected or
appointed (as the case may be) and qualified.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF COMPANY AND THE MERGER SUB
3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the Company, the Purchaser or any
holder of any shares of Company Common Stock or any holder of capital stock of
the Purchaser, the outstanding capital stock of the Purchaser and the Company
shall be converted or cancelled as follows:
(a) Conversion of Common Stock of the Purchaser. Each share of common
stock of the Purchaser outstanding immediately prior to the Effective Time
shall be converted into and become one validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.
(b) Cancellation of Certain Company Common Stock. Each share of
Company Common Stock outstanding immediately prior to the Effective Time
that is owned by Holdings, the Purchaser or any other direct or indirect
subsidiary of Holdings or held in the treasury of the Company shall
automatically be cancelled and retired and shall cease to exist, and no
cash or other consideration shall be delivered or deliverable in exchange
therefor.
(c) Conversion of Company Common Stock. Each outstanding share of
Company Common Stock (other than any such shares of Company Common Stock to
be cancelled pursuant to Sec-
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tion 3.1(b)) and any Dissenting Shares (as defined in Section 3.3) shall be
converted into the right to receive an amount in cash equal to the greater
of $9.25 or any higher price paid pursuant to the Offer (the "Merger
Consideration").
(d) Cancellation and Retirement of Company Common Stock. All shares
of Company Common Stock issued and outstanding immediately prior to the
Effective Time 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 of Company Common Stock shall, to
the extent such certificate represents such shares of Company Common Stock,
cease to have any rights with respect thereto, except the right to receive
the Merger Consideration upon surrender of such certificate in accordance
with Section 3.4.
3.2 Company Options. At the Effective Time, each option (a "Company
Option") to purchase shares of Company Common Stock outstanding immediately
prior to the Effective Time shall become immediately vested. Each Company Option
with an exercise price per share of Company Common Stock less than the Merger
Consideration shall automatically be converted into the right to receive cash in
the amount of the product of (a) the Merger Consideration minus such exercise
price, multiplied by (b) the number of shares of Company Common Stock for which
such Company Option is exercisable. All other Company Options outstanding as of
the Effective Time shall automatically be terminated effective as of the
Effective Time. The holders of all Company Options subject to automatic
conversion pursuant to this Section 3.2 are herein referred to as the "Eligible
Option Holders." Prior to the purchase of Shares pursuant to the Offer, the
Board of Directors of the Company (or, if appropriate, any committee
administering the plan(s) pursuant to which the Company Options have been
granted) shall adopt such resolutions, obtain such consents, or take such other
actions as are required to effect the transactions contemplated by this Section
3.2.
3.3 Dissenters' Rights. Notwithstanding any provision of this Agreement
to the contrary, any shares of Company Common Stock outstanding immediately
prior to the Effective Time held by a holder who has demanded and perfected the
right, if any, for appraisal of those shares of Company Common Stock in
accordance with the provisions of Section 262 of the DGCL and as of the
Effective Time has not withdrawn or lost such right to such appraisal
("Dissenting Shares") shall not be converted into or represent a right to
receive Merger Consideration, but the holder shall only be entitled to such
rights as are granted by the DGCL. If a holder of shares of Company Common Stock
who demands appraisal of those shares of Company Common Stock under the DGCL
shall effectively withdraw or lose (through failure to perfect or otherwise) the
right to appraisal, then, as of the Effective Time or the occurrence of such
event, whichever last occurs, those shares of Company Common Stock shall be
converted into and represent only the right to receive the Merger Consideration
as provided in Section 3.1(c), without interest, upon the surrender of the
certificate or certificates representing those shares of Company Common Stock.
The Company shall give the Purchaser (i) prompt notice of any written demands
for appraisal of any shares of Company Common Stock, attempted withdrawals of
such demands, and any other instruments served pursuant to the DGCL received by
the Company relating to stockholders' rights of appraisal and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of the Purchaser, voluntarily make any payment with
respect to any such demands for appraisals of capital stock of the Company,
offer to settle or settle any such demands or approve any withdrawal of any such
demands.
3.4 Paying Agent. (a) Prior to the Effective Time, Purchaser shall
designate a bank or trust company to act as agent for the holders of Shares in
connection with the Merger (the "Paying Agent") to receive the Merger
Consideration to which holders of Shares shall become entitled pursuant to
Section 3.1(c). When and as needed, Holdings or Purchaser will make available to
the Paying Agent sufficient funds to make all payments pursuant to Section
3.4(b). Such funds shall be invested by the Paying Agent as directed by
Purchaser or, after the Effective Time, the Surviving Corporation, provided that
such investments shall be in obligations of or guaranteed by the United States
of America, in commercial paper obligations rated A-1 or P-1 or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or in certificates of deposit, bank repurchase agreements or banker's
acceptances of commercial banks with capital exceeding $500 million. Any net
profit resulting from, or interest or income produced by, such investments will
be payable to the Surviving Corporation or Holdings, as Holdings directs.
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(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Shares (the "Certificates"), a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. Upon surrender to
the Paying Agent of a Certificate, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such Certificate,
and such Certificate shall then be cancelled. No interest shall be paid or
accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the Certificates. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable.
(c) At any time following six months after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds (including any interest received with respect thereto) which had
been made available to the Paying Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Certificate for Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Company Common Stock on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares except as otherwise provided for herein or by
applicable law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE PURCHASER
Holdings and the Purchaser, jointly and severally, represent and warrant to
the Company that the statements contained in this Article IV are true and
correct, except as set forth in the disclosure statement delivered by the
Purchaser to the Company concurrently herewith and identified as the "Purchaser
Disclosure Statement." All exceptions noted in the Purchaser Disclosure
Statement shall be numbered to correspond to the applicable Sections to which
such exception refers; provided, however, that any disclosure set forth on any
particular schedule shall be deemed disclosed in reference to all applicable
schedules if the disclosure in respect of the particular schedule is sufficient
on its face without further inquiry reasonably to inform the Company of the
information required to be disclosed in respect of the other schedules to avoid
a breach under the provisions hereof corresponding to such other schedules.
4.1 Existence, Good Standing, Corporate Authority. Each of Holdings and
the Purchaser (i) is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation; (ii) has all
requisite power and authority to own or lease and operate its properties and
assets, and to carry on its business as now conducted and as currently proposed
to be conducted prior to the Effective Time, except where the failure to have
such power and authority would not have a Material Adverse Effect (as
hereinafter defined) on Holdings, and to consummate the transactions
contemplated hereby; (iii) is duly
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qualified or licensed to do business and is in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed, except where the failure to
so qualify, individually or in the aggregate, would not have a Material Adverse
Effect on Holdings; and (iv) has obtained all licenses, permits, franchises and
other governmental authorizations necessary to the ownership or operation of its
properties or the conduct of its business, except where the failure to have
obtained such licenses, permits, franchises or authorizations would not have a
Material Adverse Effect on Holdings. The copies of the Certificate of
Incorporation and By-laws of each of Holdings and Purchaser as in effect on the
date hereof have been previously delivered to the Company and are true and
correct. For purposes of this Agreement, a "Material Adverse Effect" when used
with respect to any entity means (a) any change or effect that is, individually
or in the aggregate, materially adverse to the business, operations, assets,
liabilities, financial condition or results of operations of such entity and its
subsidiaries and controlled entities taken as a whole, or (b) a material
impairment on the ability of such entity or its subsidiaries and controlled
entities taken as a whole to perform any of their material obligations under
this Agreement or to consummate the Merger.
4.2 Authorization of Agreement and Other Documents. The execution and
delivery of this Agreement has been duly authorized by the Board of Directors of
each of Holdings and the Purchaser and no other proceedings on the part of
Holdings, the Purchaser or their respective stockholders are necessary to
authorize the execution, delivery or performance of this Agreement. This
Agreement is a valid and binding obligation of each of Holdings and the
Purchaser, enforceable against each of Holdings and the Purchaser in accordance
with its terms.
4.3 Non-Contravention. The execution, delivery and performance of this
Agreement by each of Holdings and the Purchaser and the consummation by each of
Holdings and the Purchaser of the transactions contemplated hereby to be
consummated by it, will not (i) violate or conflict with any provision of any
law applicable to Holdings or the Purchaser or by which any property or asset of
Holdings or the Purchaser is bound, (ii) require the consent, waiver, approval,
license or authorization of or any filing by Holdings or the Purchaser with any
public authority (other than (a) the filing of a pre-merger notification report
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (b) in connection with or in compliance with the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act, and
the DGCL, and (c) applicable state statutes and regulations regulating the
conduct of the Surviving Corporation's business as identified in the Purchaser
Disclosure Statement), (iii) conflict with or result in any breach of any
provision of the Certificate of Incorporation or By-laws of Holdings or the
Purchaser in any respect or (iv) violate, conflict with, result in a breach of
or the acceleration of any obligation under, or constitute a default (or an
event which with notice or the lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Holdings or the Purchaser pursuant to any provision of any
indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, ordinance, regulation or decree to which Holdings or the Purchaser is
subject or by which Holdings or the Purchaser or any of their property or assets
is bound; except in the case of clauses (i), (ii) and (iv) above where such
violations, conflicts, breaches, defaults or the failure to give such notice,
make such filings, or obtain such authorizations, consents or approvals, would
not, individually or in the aggregate, have a Material Adverse Effect on
Holdings.
4.4 Disclosure Documents. The Offer Documents, as filed pursuant to
Section 1.1, will not, at the time such Offer Documents are filed with the
Commission or are first published, sent or given to stockholders, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Holdings
for inclusion in the Proxy Statement shall not, on the date the Proxy Statement
is first mailed to stockholders, at the time of the Stockholders Meeting (as
defined in Section 6.2) or at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not false or misleading or necessary to correct any
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statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meeting which has become false or misleading.
Notwithstanding the foregoing, Holdings and Purchaser make no representation or
warranty with respect to any information supplied by the Company or any of its
representatives which is contained in or incorporated by reference in any of the
foregoing documents or the Offer Documents. The Offer Documents, as amended and
supplemented, will comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
4.5 Brokers. No person is entitled to any brokerage or finder's fee or
commission in connection with the transactions contemplated by this Agreement as
a result of any action taken by or on behalf of Holdings or the Purchaser other
than Vestar Capital Partners.
4.6 Commitment Letters. Executed commitment letters from Vestar (the
"Vestar Commitment Letter") and NationsBank, N.A. (the "NationsBank Commitment
Letter") and an executed letter from NationsBanc Montgomery Securities LLC
stating that it is highly confident that it can provide subordinated debt
financing in connection with the transaction contemplated by this Agreement (the
"Highly Confident Letter") (the Highly Confident Letter, the Vestar Commitment
Letter and the NationsBank Commitment Letter, collectively, the "Commitment
Letters") are included in Section 4.6 of the Purchaser Disclosure Statement. As
of the date of this Agreement, the Commitment Letters provided to the Company
are in full force and effect and have not been amended in any material respect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Holdings and the Purchaser that the
statements contained in this Article V are true and correct, except as set forth
in the disclosure statement delivered by the Company to Holdings concurrently
herewith and identified as the "Company Disclosure Statement." All exceptions
noted in the Company Disclosure Statement shall be numbered to correspond to the
applicable Sections to which such exception refers; provided, however that any
disclosure set forth in any particular schedule shall be deemed disclosed in
reference to all applicable schedules if the disclosure in respect of the
particular schedule is sufficient on its face without further inquiry reasonably
to inform Holdings of the information required to be disclosed in respect of the
other schedules to avoid a breach under the provisions hereof corresponding to
such other schedules.
5.1 Organization, Standing and Qualification. Each of the Company and the
Controlled Entities (as defined in Section 5.3) (i) is a corporation duly
organized, validly existing and in good standing under the laws in the
jurisdiction of its incorporation; (ii) has all requisite power and authority to
own or lease and operate its properties and assets, and to carry on its business
as now conducted and as currently proposed to be conducted, except where the
failure to have such power and authority would not have a Material Adverse
Effect on the Company, and to consummate the transactions contemplated hereby;
(iii) is duly qualified or licensed to do business and is in good standing in
all jurisdictions in which it owns or leases property or in which the conduct of
its business requires it to so qualify or be licensed except where the failure
to so qualify, individually or in the aggregate, would not have a Material
Adverse Effect on the Company; and (iv) has obtained all licenses, permits,
franchises and other governmental authorizations necessary for the ownership or
operation of its properties or the conduct of its businesses except where the
failure to have obtained such licenses, permits, franchises or authorizations
would not have a Material Adverse Effect on the Company.
5.2 Capitalization.
(a) The total authorized capital stock of the Company consists of (i)
5,000,000 shares of Convertible Preferred Stock, par value $.01 per share, no
shares of which are issued and outstanding as of the date of this Agreement; and
(ii) 21,000,000 shares of Company Common Stock, of which 296,638 shares of Class
A Common Stock and 6,290,178 shares of Voting Common Stock are issued and
outstanding on the date of this Agreement. There are no shares of capital stock
of the Company of any other class authorized, issued or outstanding.
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(b) Each outstanding share of Company Common Stock is (i) duly authorized
and validly issued and (ii) fully paid and nonassessable and free of any
preemptive and similar rights.
(c) Other than Company Options that will become vested (and converted into
the right to receive cash) or canceled at the Effective Time pursuant to Article
III hereof, as of the Effective Time, there will be no outstanding (i)
securities convertible into or exchangeable for any capital stock of the
Company, (ii) options, warrants or other rights to purchase or subscribe to
capital stock of the Company or securities convertible into or exchangeable for
capital stock of the Company, or (iii) contracts, commitments, agreements,
understandings, rights (including registration rights), arrangements, calls or
claims of any kind to which the Company is a party or is bound relating to the
issuance of any capital stock of the Company, including the commitments referred
to in Section 5.2(c)(iii) of the Company Disclosure Statement. Section 5.2(c) of
the Company Disclosure Statement identifies, as of the date hereof, the option
holder, the number of shares of Company Common Stock subject to each Company
Option, the exercise price and the expiration date of each outstanding Company
Option.
5.3 Subsidiaries. The Company owns directly or indirectly each of the
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect directors or others performing
similar functions with respect to such subsidiary) of each of the Company's
subsidiaries indicated in Part I of Section 5.3 of the Company Disclosure
Statement as being owned by the Company (the "Subsidiaries") and has an
ownership interest or the right to purchase those entities listed on Parts II
and III of Section 5.3 of the Company Disclosure Statement (together with the
Subsidiaries, the "Controlled Entities"), and the Controlled Entities are the
only entities in which the Company directly or indirectly beneficially owns an
equity interest. Each of the outstanding shares of capital stock beneficially
owned by the Company of each of the Company's Controlled Entities is duly
authorized, validly issued, fully paid and nonassessable, and is owned, directly
or indirectly, by the Company or a wholly owned Subsidiary free and clear of all
liens, pledges, security interests, claims or other encumbrances.
5.4 Constituent Documents. True and complete copies of the Certificate of
Incorporation and all amendments thereto, the By-laws, as amended and currently
in force, and all corporate minute books and records of the Company and each of
its Controlled Entities have been furnished by the Company to the Purchaser for
inspection to the extent requested by the Purchaser.
5.5 Authorization of Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company and no other
proceedings on the part of the Company are necessary to authorize the execution,
delivery or performance of this Agreement, except for the Requisite Stockholder
Approval. This Agreement is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
5.6 Non-Contravention. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) violate or conflict with any provision of any
law applicable to the Company or any of its Controlled Entities or by which any
property or asset of the Company or any of its Controlled Entities is bound,
(ii) require any material consent, waiver, approval, license, qualification,
order or authorization of or any filing by the Company or any of its Controlled
Entities with any public authority (other than (a) the filing of a pre-merger
notification report under the HSR Act, (b) in connection with or in compliance
with the provisions of the Securities Act, the Exchange Act and the DGCL and (c)
applicable state statutes and regulations regulating the conduct of the
Surviving Corporation's business as identified in the Company Disclosure
Statement), (iii) conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-laws of the Company or any of its Controlled
Entities in any respect or (iv) except as set forth in Section 5.6 of the
Company Disclosure Statement, violate, conflict with, result in a breach of or
the acceleration of any obligation under, or constitute a default (or an event
which with notice or the lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property or
asset of the Company or any of its Controlled Entities pursuant to, any
provision of any material indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, license, ordinance, permit, franchise, joint
venture agreement, limited liability company agreement,
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partnership agreement, regulation or decree to which the Company or any of its
Controlled Entities is subject or by which the Company or any of its Controlled
Entities or any of their property or assets is bound (including without
limitation Material Contracts in existence on the date hereof between any entity
affiliated with Columbia/HCA Healthcare Corporation or Tenet Healthcare
Corporation or any of the Company's managed care providers, on the one hand, and
any of the Company and its Controlled Entities, on the other hand); except in
the case of clause (i) where such violation or conflict would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
5.7 Compliance with Laws.
(a) The Company and the Controlled Entities hold all permits, licenses,
variances, exemptions, orders and approvals of any governmental entities
necessary for the lawful conduct of their business (the "Permits"), except where
the failure to hold such Permits would not have a Material Adverse Effect on the
Company.
(b) Since the later of the date on which the particular Controlled Entity
was acquired (the "Controlled Entity Acquisition Date") and January 1, 1996, the
Company and the Controlled Entities have been in substantial compliance with the
terms of the Permits.
(c) As of the date of this Agreement, no investigation, review, inquiry or
proceeding by any governmental entity with respect to any of the Company and the
Controlled Entities is, to the knowledge of the Company, pending or threatened
which, if adversely decided, would be reasonably likely to have a Material
Adverse Effect on the Company.
5.8 Commission Documents. The Company has delivered or made available to
Holdings each registration statement, report, proxy statement or information
statement (as defined in Regulation 14C under the Exchange Act) prepared by it
since January 1, 1996, which reports constitute all of the documents required to
be filed by the Company with the Commission since such date, each in the form
(excluding exhibits and any amendments thereto) filed with the Commission
(collectively, the "Company Reports"). As of their respective dates, the Company
Reports and any Company Reports filed after the date hereof and prior to the
Effective Time (a) complied as to form in all material respects with the
applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations thereunder; and (b) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The Company has
timely filed with the Commission all reports required to be filed under Section
13, 14 and 15(d) of the Exchange Act since January 1, 1996. Each of the
consolidated balance sheets of the Company included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
fairly present in all material respects the consolidated financial position of
the Company and its Subsidiaries as of its date (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect, and each of the consolidated statements of income,
retained earnings and cash flows of the Company included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly present in all material respects the results of operations, stockholders
equity or cash flows, as the case may be, of the Company and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount or
effect). The financial statements of the Company, including the notes thereto,
included in or incorporated by reference into the Company Reports comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the Commission with respect thereto, and
have been prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto). Since
January 1, 1996, there has been no material change in the Company's accounting
methods or principles except as described in the notes to such Company financial
statements.
5.9 Insurance. Section 5.9 of the Company Disclosure Statement contains a
list of all insurance policies which are owned by any of the Company and the
Controlled Entities or which name the Company or any Controlled Entity as an
insured (or loss payee), including without limitation those which pertain to the
assets, employees or operations of the Company and the Controlled Entities. All
such insurance policies are in full force and effect and the Company has not
received notice of cancellation of any such insurance policies.
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5.10 Litigation. Except as set forth in Section 5.10 of the Company
Disclosure Statement, there is no suit, claim, action, litigation or proceeding,
in law or in equity, and there are no proceedings or governmental investigations
before any commission or other administrative authority, pending or, to the
Company's knowledge, threatened against the Company, or any of the Company's
officers, directors or affiliates, with respect to or affecting the Company's
operations, businesses, or financial condition, or related to the consummation
of the transactions contemplated hereby which, is reasonably likely to have a
Material Adverse Effect on the Company.
5.11 Taxes.
(a) As used in this Agreement, (i) the term "Taxes" means all federal,
state, local, foreign and other income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees, assessments or charges
of any kind whatever of a nature similar to taxes, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto,
and the term "Tax" means any one of the foregoing Taxes; and (ii) the term
"Returns" means all returns, declarations, reports, statements and other
documents required to be filed in respect of Taxes, including any schedule or
attachment thereto, and including any amendment thereto, and the term "Return"
means any one of the foregoing Returns. The representations contained in this
Section 5.11 with respect to a Controlled Entity are made with respect to such
Controlled Entity from the date of the Controlled Entity Acquisition Date.
(b) There have been properly completed and filed on a timely basis and in
correct form all material Returns required to be filed by the Company or its
Controlled Entities or requests for extensions to file such Tax Returns have
been timely filed and the Company and its Controlled Entities are within such
period for extension. As of the time of filing, the foregoing Returns were
correct and complete in all material respects.
(c) With respect to all amounts in respect of Taxes imposed upon the
Company or its Controlled Entities, or for which the Company or its Controlled
Entities is or could be liable, whether to taxing authorities (as, for example,
under law) or to other persons or entities (as, for example, under tax
allocation agreements), with respect to all taxable periods or portions of
periods ending on or before December 31, 1998, (i) all applicable tax laws and
agreements have been complied with in all material respects, and (ii) all
amounts required to be paid by the Company or its Controlled Entities to taxing
authorities on or before the date hereof have been paid and with respect to
Taxes not yet due and owing to a taxing authority, such Taxes have been paid or
adequately reserved for on the Company's financial statements in accordance with
generally accepted accounting principles.
(d) There are no audits or similar proceedings by any taxing authority
pending or threatened with respect to Taxes, except as disclosed in Section
5.11(d) of the Company Disclosure Statement. No assessment of Tax has been
proposed against the Company or its Controlled Entities or any of their
respective assets or properties. No closing agreement pursuant to Section 7121
or any similar provision of any state, local or foreign law has been entered
into by or with respect to the Company or its Controlled Entities, except as
disclosed in Section 5.11(d) of the Company Disclosure Statement. There are no
outstanding agreements, waivers or arrangements extending the statutory period
of limitation applicable to any claim for, or the period of collection or
assessment of, Taxes due from or with respect to the Company or its Controlled
Entities for any taxable period, and no power of attorney granted by or with
respect to the Company or its Controlled Entities relating to Taxes is currently
in force.
(e) Neither the Company nor any of its Controlled Entities is a party to or
bound by any Tax allocation, Tax indemnity, Tax sharing or similar contract or
arrangement or any agreement that obligates it to make payment computed by
reference to the Taxes, taxable income or taxable losses of any other person.
(f) The Company and its Controlled Entities (i) are not, and have not been,
a member of an affiliated group filing a consolidated federal income Tax return
(other than a group the common parent of which is the Company), and (ii) has no
liability for the Taxes of any person under Treasury Regulation section 1502 (or
any similar provision of state, local or foreign law), or as a transferee or
successor, by contract or otherwise.
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(g) There are no liens with respect to Taxes upon any of the assets or
properties of the Company or its Controlled Entities, other than with respect to
Taxes not yet due.
(h) The Company and its Controlled Entities have collected all sales and
use Taxes required to be collected and has remitted, or will remit on a timely
basis, such amount to the appropriate governmental entities, or have been
furnished properly completed exemption certificates. The Company and its
Controlled Entities have duly and timely withheld from employee salaries, wages
and other compensation and paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods for which the
statute of limitation has not expired.
5.12 ERISA.
(a) Section 5.12(a) of the Company Disclosure Statement contains a list and
brief description of all "employee pension benefit plans" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (sometimes referred to herein as "Pension Plans"), "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA and referred to herein as a
"Welfare Plan") and all other Benefit Plans (defined herein as any Pension Plan,
Welfare Plan and any other plan, fund, program, arrangement or agreement to
provide employees, directors, independent contractors, officers or agents of any
Commonly Controlled Entity (as hereinafter defined) with medical, health, life,
bonus, incentive, change in control, employment, stock (option, ownership or
purchase), deferred compensation, severance, salary continuation, vacation, sick
leave, fringe, incentive insurance or other benefits), whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in the
future as a result of the transactions contemplated by this Agreement or
otherwise), whether oral or written that is currently maintained, or contributed
to, or required to be contributed to, by the Company or any other person that,
together with the Company at any time during the last six years, is or was
treated as a single employer under Section 414(b), (c), (m) or (o) of the
Internal Revenue Code of 1986, as amended (the "Code") (the Company and each
such other person, a "Commonly Controlled Entity"), for the benefit of any
current or former employees, officers or directors of any Commonly Controlled
Entity. The Company has delivered or made available to Holdings true, complete
and correct copies of (i) each Benefit Plan (or, in the case of any unwritten
Benefit Plans, descriptions thereof), (ii) the most recent annual report on
Forms 5500 and 990, if any, filed with the Internal Revenue Service with respect
to each Benefit Plan (if any such report was required), (iii) the most recent
summary plan description for each Benefit Plan for which such summary plan
description is required, (iv) each trust agreement and group annuity contract
relating to any Benefit Plan; and (v) a list of all assets and liabilities of,
allocated to or accounted for separately with respect to every Benefit Plan
(including insurance contracts associated with every Benefit Plan regardless of
whether any current cash value exists). Each Benefit Plan has been established,
funded, maintained and administered in accordance with its terms and is in
compliance with the applicable provisions of ERISA, the Code and all other
applicable laws, except where the failure to comply would not be reasonably
expected to result in a Material Adverse Effect on the Company.
(b) All Pension Plans have been the subject of favorable and up-to-date
(through any applicable remedial amendment period) determination letters from
the Internal Revenue Service, or have filed a timely application therefor, to
the effect that such Pension Plans are qualified and exempt from federal income
taxes under Section 401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor has any such Pension Plan been amended
since the date of its most recent determination letter or application therefor
in any respect that would adversely affect its qualification or materially
increase its costs.
(c) No Commonly Controlled Entity has adopted or been obligated to
contribute to any "defined benefit pension plan" as defined in Section 3(35) of
ERISA subject to Title IV of ERISA in the six (6) years preceding the date
hereof and no Commonly Controlled Entity has incurred any liability under Title
IV of ERISA.
(d) No Benefit Plan is a "multiemployer plan" and neither the Company nor
any Commonly Controlled Entity at any time has been required to contribute to
any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA ) or has
withdrawn from any multiemployer plan where such withdrawal has either: (i)
resulted or would result in any "withdrawal liability" (within the meaning of
Section 4201 of
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ERISA) that has not been fully paid; or (ii) engaged in a transaction that might
have resulted in withdrawal liability but for the application of Section 4204 of
ERISA.
(e) With respect to any Welfare Plan, (i) no such Welfare Plan is funded
through a "welfare benefits fund", as such term is defined in Section 419(e) of
the Code, (ii) no such Welfare Plan is self-insured, and (iii) each such Welfare
Plan that is a "group health plan", as such term is defined in Section
5000(b)(1) of the Code, complies with the applicable requirements of Section
4980B(f) of the Code.
(f) All contributions or premiums owed by Commonly Controlled Entities with
respect to Benefit Plans under law, contract or otherwise have been made in full
and on a timely basis and the Commonly Controlled Entities are not obligated to
contribute with respect to any Benefit Plan that involves a retroactive
contribution, assessment or funding waiver arrangement. All administrative costs
attributable to Benefit Plans have been paid when due.
(g) To the Company's knowledge, no Pension Plan or Welfare Plan or any
"fiduciary" or "party-in-interest" (as such terms are respectively defined by
Sections 3(21) and 3(14) of ERISA) thereto has engaged in a transaction
prohibited by Section 406 of ERISA or 4975 of the Code for which a valid
exception is not available.
(h) No Benefit Plan exists that could result in the payment to any present
or former employee of a Commonly Controlled Entity of any money or other
property or accelerate or provide any other rights or benefits to any present or
former employee of a Commonly Controlled Entity as a result of the transactions
contemplated by this Agreement, whether or not such payment would constitute a
parachute payment within the meaning of Section 280G of the Code.
5.13 Environmental Matters; OSHA. The Company and its Controlled Entities
are in substantial compliance with all Environmental Laws. For the purposes of
this Agreement, "Environmental Laws" means all federal, state and local
statutes, regulations, ordinances, rules, regulations and policies, all court
orders and decrees and arbitration awards, and the common law, which pertain to
environmental matters or contamination of any type whatsoever. The Company and
its Controlled Entities are in substantial compliance with the Occupational
Health and Safety Act and the rules and regulations thereunder.
5.14 Interim Conduct of Business. Except as otherwise contemplated by
this Agreement or as provided in the Company Disclosure Statement, since
December 31, 1998, the Company and the Controlled Entities have not:
(a) sold, assigned, leased, exchanged, transferred or otherwise
disposed of any portion of its assets or property that is material to the
Company and its Controlled Entities taken as a whole, except for cash
applied in the payment of the Company's liabilities in the usual and
ordinary course of business in accordance with the Company's or its
Controlled Entities' past practices;
(b) written off any asset which has a net book value which exceeds
$25,000 individually or $125,000 in the aggregate, or suffered any
casualty, damage, destruction or loss, or interruption in use, of any
material asset, property (whether or not covered by insurance), on account
of fire, flood, riot, strike or other hazard or Act of God;
(c) waived any material right arising out of the conduct of, or with
respect to, its business;
(d) made (or committed to make) capital expenditures in an amount
which exceeds $250,000 for any item or $2,500,000 in the aggregate;
(e) made any change in accounting methods or principles;
(f) borrowed any money other than in the ordinary course of business
pursuant to its existing credit facilities or issued any bonds, debentures,
notes or other corporate securities (other than equity securities),
including without limitation, those evidencing borrowed money or to make
acquisitions referred to in the Company Disclosure Statement or to satisfy
commitments to purchase entities referred to in the Company Disclosure
Statement;
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(g) increased the compensation payable to any employee, except for
normal pay increases in the ordinary course of business consistent with
past practices;
(h) made any payments or distributions to its employees, officers or
directors, except such amounts as constitute currently effective
compensation for services rendered, or reimbursement for reasonable
ordinary and necessary out-of-pocket business expenses;
(i) adopted any new Pension Plan, Welfare Plan or other Benefit Plan;
(j) issued or sold any of its securities of any class;
(k) paid, declared or set aside any dividend or other distribution on
its securities of any class, or purchased, exchanged or redeemed any of its
securities of any class;
(l) suffered or been affected by any condition, event or occurrence
which would be reasonably likely to have a Material Adverse Effect on the
Company; or
(m) made or changed any Tax election or method of accounting with
respect to Taxes, or filed any amended Tax return, or settled or
compromised any examination or proceeding with respect to any material Tax
liability.
Notwithstanding the foregoing, the Company shall not be deemed to have breached
the terms of this Section 5.14 by entering into this Agreement or by
consummating the transactions contemplated hereby.
5.15 No Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm which may result in an
obligation of the Company, Holdings or the Purchaser to pay any finder's fee,
brokerage or agent's commissions or other like payments in connection with
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that the Company has retained the Financial
Advisors, the arrangements with both of which have been disclosed in writing to
Holdings prior to the date hereof.
5.16 Disclosure Documents. Neither the Schedule 14D-9, nor any of the
information supplied by the Company for inclusion in the Offer Documents, shall,
at the respective times such Schedule 14D-9, the Offer Documents or any
amendments or supplements thereto are filed with the Commission or are first
published, sent or given to stockholders, as the case may be, 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 the
light of the circumstances under which they were made, not misleading. Neither
the proxy statement to be sent to the stockholders of the Company in connection
with the Stockholders Meeting nor the information statement to be sent to such
stockholders, in each case if required and as appropriate (such proxy statement
or information statement, as amended or supplemented, is herein referred to as
the "Proxy Statement"), shall, at the date the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to stockholders and at the time
of the Stockholders Meeting and at the Effective Time, be false or misleading
with respect to any material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they are made, not misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders Meeting which has become false
or misleading. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Holdings
or Purchaser or any of their respective representatives which is contained in
the Schedule 14D-9 or the Proxy Statement. The Schedule 14D-9 and the Proxy
Statement will comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder.
5.17 Billing and Coding. Except in the situations that would not have a
Material Adverse Effect on the Company, the Company and, since the applicable
Controlled Entity Acquisition Dates, the Controlled Entities have, whether
directly or indirectly through contractual arrangements with others, billed
third party payers (including, but not limited to, Medicare, Medicaid, CHAMPUS
and private payers) for health care services rendered by the Company, its
Controlled Entities, or any of its or their employees, professional staff, or
other persons or entities on behalf of whom or for which the Company or any of
its Controlled Entities is authorized to bill for health care services, in
accordance in all material respects with all federal, state and local
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laws, rules and regulations, and all agreements, applicable with respect
thereto. Without limiting the generality of the foregoing, for said purposes all
such services have been properly documented and coded, except to the extent the
failure to so comply or to do so would not have a Material Adverse Effect on the
Company.
5.18 Properties.
(a) The Company and its Controlled Entities have good, valid and, in the
case of its Owned Property (as defined below), marketable fee title to its real
property and interests in real property indicated as being owned by the Company
and its Controlled Entities in the financial statements included in the Company
Reports, except for properties sold or otherwise disposed of in the ordinary
course of business (the "Owned Properties", free and clear of all mortgages,
liens, security interests, easements, covenants, rights-of-way and other similar
restrictions and encumbrances ("Encumbrances"), except where the failure to have
such marketable fee title would not interfere in any material respect with the
conduct of the business of the Company and the Controlled Entities as currently
conducted. The leases relating to the Company's leased real property ("Company
Leases") are in full force and effect, free and clear of all Encumbrances except
where the failure to have such marketable fee title would not interfere with the
conduct of business of the Company as currently conducted, and, to the best
knowledge of the Company, are not in default.
(b) No consent or approval is required to be obtained under any agreement
by which the Company or any of its Subsidiaries has obtained a leasehold
interest in any leased property by or with respect to the Company or any
Subsidiary of the Company, and no right of termination shall arise under any
Company Lease nor does any landlord have the right to increase the rent payable
under any Company Lease, in each case in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, except to the extent that the foregoing
individually or in the aggregate would not have a Material Adverse Effect on the
Company.
(c) Neither the Company nor any of its Controlled Entities is obligated
under or bound by any option, right of first refusal, purchase contract, or
other contractual right to sell or dispose of any Owned Property or any portions
thereof or interests therein which property, portions and interests,
individually or in the aggregate, are material to the Company.
(d) Neither the Company nor any of its Controlled Entities or any
affiliates of any of the foregoing has an ownership, financial or other interest
in the landlord under any of the Company Leases which exceeds a 50% ownership,
financial or other interest in such landlord.
5.19 Material Contract Defaults; Non-Compete.
(a) To the actual knowledge of any of the Company's senior officers,
neither the Company nor any of its Controlled Entities is, or has received any
notice or has any knowledge that any other party is, in default or unable to
perform in any respect under any material contracts, agreements, commitments,
arrangements, leases, licenses, policies or other instruments to which it or any
of the Controlled Entities is a party or by which it or any such Controlled
Entity is bound ("Material Contracts"), except for those defaults which would
not reasonably be expected, either individually or in the aggregate, to have a
Material Adverse Effect on the Company, and, there has not occurred any event
that with the lapse of time or the giving of notice or both would constitute
such a default, except for those defaults which would not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect on the Company. Neither the Company nor any of the Controlled Entities is
a party to any Material Contract that is required to be disclosed as an exhibit
to the Company Reports in accordance with the rules and regulations of the
Commission that has not been so disclosed.
(b) Neither the Company nor any of its Controlled Entities is a party to
any agreement that expressly limits the ability of the Company or any of its
Controlled Entities to compete in or conduct any line of business or compete
with any person in any geographic area or during any period of time.
(c) There has not occurred any event that with the lapse of time or the
giving of notice or both would reasonably be likely to result in the, and
neither the Company nor any of its Controlled Entities has received any notice
or has any knowledge of any reasonably likely, cancellation or modification
adverse to the Company
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or any of its Controlled Entities of any material contract or arrangement with
any of South Broward Hospital District (d/b/a Memorial Healthcare System,) any
entity affiliated with Columbia/HCA Healthcare Corporation and any entity
affiliated with Tenet Healthcare Corporation. For purposes of this Section
5.19(c), "material" shall mean a contract or arrangement which generated in
excess of $200,000 of gross profit during the fiscal year ended December 31,
1998.
5.20 Transactions with Affiliates. Except as set forth in the Company
Reports and except with respect to physician practices within the Controlled
Entities, there has been no transaction, agreement, arrangement or
understanding, or any related series thereof, between the Company or its
Controlled Entities or contractors, on the one hand, and the Company's
affiliates (other than wholly-owned (excluding directors' and nominee shares)
Subsidiaries), on the other hand, in which the amount or value involved exceeded
$20,000. As used in the definition of "affiliate", the term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
5.21 Vote Required; State Takeover Statutes.
(a) The affirmative vote of the holders of a majority of the outstanding
shares of Voting Common Stock entitled to vote thereon (the "Requisite
Stockholder Approval") are the only votes of holders of the Company's capital
stock necessary to adopt this Agreement.
(b) No state takeover statute or similar statute or regulation of the State
of Delaware (and, to the knowledge of the Company after due inquiry, of any
other jurisdiction) applies or purports to apply to this Agreement, the Merger,
the Offer or any of the other transactions contemplated hereby. No provision of
the certificate of incorporation, by-laws or other governing instruments of the
Company or any of its Controlled Entities or any applicable law would, directly
or indirectly, restrict or impair the ability of Holdings or the Purchaser to
vote, or otherwise to exercise the rights of a stockholder with respect to,
shares of the Company and its Controlled Entities that may be beneficially owned
by Holdings or the Purchaser.
5.22 1998 Financial Statements. The audited consolidated balance sheet of
the Company and its consolidated Controlled Entities as at December 31, 1998 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the fiscal year then ended, including the notes thereto, copies of
which are included in Section 5.22 of the Company Disclosure Statement, present
fairly in all material respects the consolidated financial condition of the
Company and its Controlled Entities as at such date and the consolidated results
of their operations for the fiscal year then ended, have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied consistently throughout the periods involved, and have been audited by
Arthur Andersen LLP (whose report thereon is attached thereto). None of the
Company and the Controlled Entities has any direct or indirect indebtedness,
liability, claim or obligation, accrued, absolute, contingent or otherwise
("Liabilities"), other than (i) Liabilities fully reflected on the
aforementioned audited financial statements, (ii) Liabilities incurred since
December 31, 1998 in the ordinary course of business consistent with past
practice and with the provisions hereof and (iii) Liabilities specifically
disclosed in the Company Disclosure Statement.
5.23 Year 2000 Compliance. With respect to the Company's and each of its
Controlled Entities' hospital-based systems, all computer hardware, software,
databases, systems and other computer equipment (collectively, "Software") used
by the Company or its Controlled Entities can be used prior to, during and after
the calendar year 2000 A.D., and will operate during each such time period,
either on a stand-alone basis or by interacting or interoperating with
third-party Software, without error relating to the processing, calculating,
comparing, sequencing or other use of date data.
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ARTICLE VI
COVENANTS
6.1 Interim Operations.
(a) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the time when persons
nominated by Holdings or Purchaser constitute a majority of the Board of
Directors of the Company, except as set forth in the Company Disclosure
Statement, unless Holdings has consented in writing thereto (which consent shall
not be unreasonably withheld), each of the Company and its Controlled Entities
shall:
(i) conduct its business and operations according to their usual,
regular and ordinary course consistent with past practice;
(ii) to the extent consistent with its business, use commercially
reasonable efforts to preserve intact its business organization and
goodwill, keep available the services of its officers and employees and
maintain satisfactory relationships with those persons having business
relationships with it;
(iii) not amend its certificate of incorporation or by-laws or
comparable governing instruments;
(iv) promptly notify Holdings of any Material Adverse Effect on the
Company, any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may
be contemplated), the material breach by the Company of any representation
or warranty contained herein or the occurrence or non-occurrence of any
material event the occurrence or non-occurrence of which would be likely to
cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect, any failure of the Company to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder or any notice or
other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement where the failure to obtain such third
party's consent would have a Material Adverse Effect on the Company;
(v) promptly deliver to Holdings true and complete copies of any
report, statement or schedule filed with the Commission subsequent to the
date of this Agreement;
(vi) not (A) except pursuant to the exercise of options, warrants,
conversion rights existing on the date hereof and disclosed pursuant to
this Agreement, issue any shares of its capital stock, effect any stock
split, or reclassify, combine, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, its capital stock or otherwise change its
capitalization as it existed on the date hereof; (B) grant, confer or award
any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock; (C) increase any
compensation or fringe benefits or enter into or amend any employment
agreement with any of its present or future officers, directors or
employees, except for normal increases of salaries or wages of employees of
the Company or its Controlled Entities who are not directors or officers of
the Company in the ordinary course of business and consistent with past
practice; (D) grant any severance or termination package to any employee or
consultant not currently required to be paid under existing severance plans
to, or enter into any employment, consulting or severance agreement or
arrangement with, any present or former director, officer or other employee
of the Company or any of its Controlled Entities; (E) adopt any new
employee benefit plan (including any stock option, stock benefit or stock
purchase plan) or amend any existing employee benefit plan in any material
respect, except for changes which are less favorable to participants in
such plans; or (F) establish, adopt, enter into or amend or terminate any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any present or former directors,
officers or employees or the Company or any of its Controlled Entities.
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(vii) not (A) declare, set aside, make or pay any dividend or make any
other distribution or payment payable in cash, stock, property or otherwise
with respect to any shares of its capital stock or other ownership
interests; or (B) directly or indirectly, redeem, purchase or otherwise
acquire any shares of its capital stock, or make any commitment for any
such action; other than the purchase prior to the Closing Date for cash of
shares of Company Common Stock subject to stock price guarantees disclosed
in Section 5.2(c)(iii) of the Company Disclosure Statement at prices per
share not in excess of the applicable guarantee price disclosed in said
Section 5.2(c)(iii);
(viii) not enter into any material agreement or transaction, or agree
to enter into any material agreement or transaction, outside the ordinary
course of business, including, without limitation, any transaction
involving any merger, consolidation, joint venture, license agreement,
partial or complete liquidation or dissolution, reorganization,
recapitalization, restructuring, or a purchase, sale, lease or other
acquisition or disposition of any assets or capital stock; other than the
purchase prior to the Closing Date for cash of shares of Company Common
Stock subject to stock price guarantees disclosed in Section 5.2(c)(iii) of
the Company Disclosure Statement at prices per share not in excess of the
applicable guarantee price disclosed in said Section 5.2(c)(iii);
(ix) not incur any indebtedness for borrowed money or assume, endorse,
guarantee or otherwise become responsible for any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any debt
securities of others, in any such case other than in the ordinary course of
its business; provided that the Company may incur indebtedness pursuant to
its current debt facilities with NationsBank, N.A. that is prepayable
without penalty at or prior to the Effective Time in order to finance the
purchase of shares of Company Common Stock subject to stock price
guarantees disclosed in Section 4.2(c)(iii) of the Company Disclosure
Statement;
(x) not make any loans, advances or capital contributions to, or
investments in, any other person other than in the ordinary course of
business;
(xi) not make or commit to make any capital expenditures in excess of
$250,000 individually or $2,500,000 in the aggregate;
(xii) not voluntarily elect to alter the manner of keeping its books,
accounts or records, or change in any manner the accounting practices or
principles therein reflected;
(xiii) not to issue, deliver, sell, lease, sell and leaseback, pledge,
dispose of or encumber, or authorize or commit to the issuance, delivery,
sale, lease, sale/leaseback, pledge, disposition or encumbrance of material
properties or assets of the Company or any of its Controlled Entities,
except liens for taxes not currently due and liens granted to incur the
indebtedness contemplated by Section 6.1(a)(ix) hereof;
(xiv) use its commercially reasonable efforts to maintain insurance on
its tangible assets and its businesses in such amounts and against such
risks and losses as are currently in effect;
(xv) not to (A) make or change any Tax election or method of
accounting with respect to Taxes, (B) file any amended Tax Return or (C)
settle or compromise any examination or proceeding with respect to any
material Tax liability;
(xvi) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), except for the payment, discharge or satisfaction of
liabilities or obligations in the ordinary course of business consistent
with past practice, or waive, release, grant, or transfer any rights of
value; other than the purchase prior to the Closing Date for cash of shares
of Company Common Stock subject to stock price guarantees disclosed in
Section 5.2(c)(iii) of the Company Disclosure Statement at prices per share
not in excess of the applicable guarantee price disclosed in said Section
5.2(c)(iii);
(xvii) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement), other than settlements involving
amounts payable by the Company and the Controlled Entities that are not in
excess of (x) amounts reserved for in respect of litigation in the most
recent
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consolidated financial statements of the Company included in the Company
Reports or (y) amounts fully recoverable from insurers of the Company and
the Controlled Entities or (z) amounts applied against self-insured
retention amounts or deductibles (provided such settlements do not involve
any material non-monetary obligations on the part of the Company);
(xviii) change the composition, fill any vacancies or increase the
size of the Company's Board of Directors; or
(xix) amend or modify in any material respect or terminate any
existing intellectual property license, execute any new intellectual
property license, sell, license or otherwise dispose of, in whole or in
part, any Company intellectual property, and/or subject any Company
intellectual property to any lien or other encumbrance; or
(xx) not agree, or commit to agree, to take or fail to take any action
not permitted to be taken or not taken pursuant to this Section 6.1(a).
(b) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the time when persons
nominated by Holdings or Purchaser constitute a majority of the Board of
Directors of the Company, except as set forth in the Purchaser Disclosure
Statement, unless the Company has consented in writing thereto, each of Holdings
and the Purchaser shall:
(i) promptly deliver to the Company true and correct copies of any
report, statement or schedule filed by Holdings or the Purchaser with the
Commission subsequent to the date of this Agreement;
(ii) promptly notify the Company of any Material Adverse Effect on
Holdings, any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may
be contemplated), or the material breach by Holdings or the Purchaser of
any representation or warranty contained herein.
6.2 Stockholders Meeting. (a) The Company, acting through its Board of
Directors, shall, if required in accordance with applicable law and the
Company's Certificate of Incorporation and By-Laws and in consultation with
Holdings, (i) duly call, give notice of, convene and hold a meeting of its
stockholders as soon as practicable following the purchase of Shares pursuant to
the Offer for the purpose of adopting this Agreement (the "Stockholders
Meeting") and (ii) (A) except to the extent modified in accordance with this
Section 6.2, include in the Proxy Statement the unanimous recommendation of the
Board of Directors that the stockholders of the Company vote in favor of the
adoption of this Agreement and include the written opinions of the Financial
Advisors that the consideration to be received by the stockholders of the
Company (other than Holdings and its affiliates) pursuant to the Offer and the
Merger is fair to such stockholders from a financial point of view and (B) use
its reasonable best efforts to obtain the Requisite Stockholder Approval. The
Board of Directors of the Company shall not withdraw, amend or modify in a
manner adverse to Holdings or the Purchaser such recommendation (or announce
publicly its intention to do so) provided that the Board of Directors shall be
permitted to withdraw, amend or modify its recommendation (or publicly announce
its intention to do so) in a manner adverse to Holdings or the Purchaser if: (1)
the Company has complied with Section 6.10, (2) a Superior Proposal (as defined
in Section 6.10) shall have been proposed by any person other than Holdings or
the Purchaser and such proposal is pending at the time of such action; (3) the
Board of Directors shall have concluded in good faith, after consultation with
its outside legal counsel, that the Board of Directors is required to withdraw,
amend or modify such recommendation in order to comply with its fiduciary duties
to the stockholders of the Company under applicable law; and (4) the Company
shall have notified Holdings of such Superior Proposal at least two business
days in advance of such action. At the Stockholders Meeting, Parent and
Purchaser shall cause all Shares then beneficially owned by them and their
subsidiaries to be voted in favor of the adoption of this Agreement.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90% of the outstanding Shares, the Company and Holdings agree,
subject to Article VII, to take all necessary and appropriate action to cause
the Merger to become effective as soon as reasonably practicable after such
acquisition, without a meeting of the Company's stockholders, in accordance with
Section 253 of the DGCL.
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6.3 Proxy Statement, Etc. If required by applicable law, as soon as
practicable following Holding's request, the Company shall file with the
Commission under the Exchange Act and the rules and regulations promulgated
thereunder, and use its reasonable good faith efforts to have cleared by the
Commission and mailed to the Company's stockholders, the Proxy Statement with
respect to the Stockholders Meeting. Holdings, Purchaser and the Company will
cooperate with each other in the preparation of the Proxy Statement. Without
limiting the generality of the foregoing, each of Holdings and Purchaser will
furnish to the Company the information relating to it required by the Exchange
Act and the rules and regulations promulgated thereunder to be set forth in the
Proxy Statement and the Company will promptly notify the Purchaser of the
receipt of any comments from the Commission or of any request by the Commission
for any amendment to the Proxy Statement or for additional information, and the
Company will permit Holdings to review and comment upon all filings by the
Company with the Commission, including the Proxy Statement and the Schedule
14D-9, and any amendments thereto, and all mailings to the Company's
stockholders in connection with the Offer and the Merger, including the Proxy
Statement and the Schedule 14D-9, shall be subject to the prior review and
comment of Holdings. The Company agrees to use its best efforts, after
consultation with the other parties hereto, to respond promptly to any comments
made by the Commission with respect to the Proxy Statement or the Schedule
14D-9, and any preliminary version thereto or amendment thereof, filed by it,
and to cause the Proxy Statement to be mailed to the Company's stockholders at
the earliest practicable time.
6.4 Company Board Representation; Section 14(f). (a) Promptly upon the
purchase by Purchaser of Shares pursuant to the Offer, and from time to time
thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board of Directors of the
Company as shall give Purchaser representation on the Board of Directors equal
to the product of the total number of directors on such Board (giving effect to
the directors elected pursuant to this sentence) multiplied by the percentage
that the aggregate number of Shares beneficially owned by Purchaser or any
affiliate of Purchaser bears to the total number of Shares then outstanding, and
the Company shall, at such time, promptly take all action necessary to cause
Purchaser's designees to be so elected, including either increasing the size of
the Board of Directors or securing the resignations of incumbent directors or
both. The Company will use its reasonable best efforts to cause persons
designated by Purchaser to constitute the same percentage as is on the Board of
(i) each committee of the Board, (ii) each board of directors of each Controlled
Entity of the Company and (iii) each committee of each such board, in each case
only to the extent permitted by law. Until Purchaser acquires a majority of the
outstanding Shares on a fully diluted basis, the Company shall use its
reasonable best efforts to ensure that all the members of the Board and such
boards and committees as of the date hereof who are not employees of the Company
shall remain members of the Board and such boards and committees.
(b) The Company's obligations to appoint designees to its Board of
Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions required
pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations
under this Section 6.4 and shall include in the Schedule 14D-9 or a separate
Rule 14f-1 information statement provided to stockholders such information with
respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 6.4.
Holdings or Purchaser will promptly supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by Section 14(f) and Rule
14f-1.
(c) Following the election or appointment of Purchaser's designees pursuant
to this Section 6.4 and prior to the Effective Time, in addition to any vote of
the Board of Directors required by law or the Company's Certificate of
Incorporation or By-laws, any amendment of this Agreement or the Certificate of
Incorporation or By-Laws of the Company, any termination of this Agreement by
the Company, any extension by the Company of the time for the performance of any
of the obligations or other acts of Holdings or Purchaser or waiver of any of
the Company's rights hereunder, will require the concurrence of a majority of
the directors of the Company then in office who are neither designated by
Holdings or Purchaser nor are employees of the Company or any of its Controlled
Entities (the "Disinterested Directors"). Notwithstanding Section 6.4(a) hereof,
the number of Disinterested Directors shall be not less than two; provided,
however, that, in such
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event, if the number of Disinterested Directors shall be reduced below two for
any reason, the remaining Disinterested Director shall be entitled to designate
a person to fill the vacancy, and such person shall be deemed to be a
Disinterested Director hereunder. If no Disinterested Director remains, the
other directors who were directors prior to the date hereof shall designate two
persons to fill such vacancies who shall not be employees of any of the Company
and its Controlled Entities or employees, stockholders or affiliates of Holdings
or Purchaser, and such persons shall be deemed to be Disinterested Directors
hereunder.
6.5 Inspection of Records. From the date hereof to the Effective Time,
the Company shall and shall cause its Controlled Entities, and their respective
directors, employees, auditors, counsel, financial advisors and other agents, to
(a) allow all designated officers, attorneys, accountants and other
representatives of Holdings and the Purchaser, including potential financial
sources, reasonable access at all reasonable times to its and its Controlled
Entities' officers, agents, employees, offices, records, files, correspondence,
audits and properties, as well as to all information relating to its and its
Controlled Entities' commitments, contracts, titles and financial position, or
otherwise pertaining to the business and affairs of the Company and its
Controlled Entities; (b) furnish to Holdings and the Purchaser and its
aforementioned representatives such financial, operating and other data and
other information as such persons may reasonably request; and (c) instruct the
employees, counsel, auditors and financial advisors and other agents of the
Company and its Controlled Entities to cooperate reasonably with Holdings and
the Purchaser and their investigation of the business of the Company and its
Controlled Entities. From the date hereof to the time when the Purchaser
purchases Shares pursuant to the Offer, Holdings and the Purchaser shall (a)
furnish to the Company, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such persons may reasonably request, and (b) instruct the
officers, counsel and financial advisors of Holdings and the Purchaser to
cooperate reasonably with the Company in its investigation of the business of
Holdings and the Purchaser or its subsidiaries. All information disclosed by the
Company to Holdings and the Purchaser and their representatives or by Holdings
or the Purchaser to the Company and its representatives shall be subject to the
terms of that certain Confidentiality Agreement (the "Confidentiality
Agreement") dated as of December 1, 1998 between Vestar Capital Partners III,
L.P. and the Company.
6.6 Publicity. Neither party hereto shall make any press release or
public announcement with respect to this Agreement, the Merger, the Offer or the
transactions contemplated hereby without the prior written consent of the other
party hereto (which consent shall not be unreasonably withheld); provided,
however, that each party hereto may make any disclosure or announcement which
such party, in the opinion of its outside legal counsel, is obligated to make
pursuant to applicable law or regulation of any national securities exchange, in
which case, the party desiring to make the disclosure shall consult with the
other party hereto prior to making such disclosure or announcement.
6.7 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use its reasonable best efforts to take, or cause to be
taken, all action, and to do or cause to be done, and to assist and cooperate
with the parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement and the Stockholder Documents,
including but not limited to (i) cooperation in the preparation and filing of
the Proxy Statement, the Schedule 14D-9 the Schedule 13E-3, the Schedule 13D and
the Offer Documents, any required filings under the HSR Act and any amendments
to any thereof, (ii) determining whether any filings are required to be made or
consents, approvals, waivers, licenses, permits or authorizations are required
to be obtained (or, which if not obtained, would result in an event of default,
termination or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any governmental
entities or third parties, including parties to leases, loan agreements or other
debt instruments, in connection with the transactions contemplated by this
Agreement, including the Offer and the Merger, and (iii) promptly making any
such filings, furnishing information required in connection therewith and timely
seeking to obtain any such consents, approvals, permits or authorizations.
(b) The Company shall make, subject to the condition that the transactions
contemplated herein actually occur, any undertakings required in order to comply
with the antitrust requirements or laws of any
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governmental entity, including the HSR Act, in connection with the transactions
contemplated by this Agreement; provided that no such undertaking shall be
agreed to or made unless reasonably acceptable to Holdings.
(c) The Company shall use its commercially reasonable best efforts to
obtain all consents, approvals, agreements, extensions or other waivers of
rights necessary to ensure that all Leases and other Material Contracts remain
in full force and effect for the benefit of the Company after the Effective Time
on substantially the same terms and conditions as in effect on the date hereof
(without any material increase in amounts payable by the Company thereunder).
(d) As soon as practicable after the date hereof and, in any event, prior
to the purchase of Shares pursuant to the Offer, the Company shall file with the
Internal Revenue Service, prior to the receipt by any of the Company and its
Controlled Entities of any notice of examination by the Internal Revenue
Service, a duly executed and acknowledged Form 3115 in form and substance
satisfactory to Holdings requesting permission for the Company and each of the
entities with which the Company files a consolidated Federal income tax return
to change the method of accounting for taxable gross revenues to the non-accrual
experience method as defined in Internal Revenue Code Section 448(d)(5). Any
additional or subsequent Internal Revenue Code Section 481 adjustments that may
result from a change in the method of accounting for the Company or any of its
Controlled Entities which relate to a change in the accounting of taxable gross
revenues to the non-accrual experience method, as defined in Internal Revenue
Code Section 448(d)(5), when combined with the Internal Revenue Code Section 481
adjustment reflected on the Form 3115, shall not exceed $4 million.
6.8 Employee Benefit Plans. The Purchaser covenants and agrees that it
will maintain benefit plans substantially comparable in the aggregate to the
benefit plans in place on the date hereof and disclosed in Section 5.12 of the
Company Disclosure Statement for a period of at least 1 year following the
Effective Time. For purposes of satisfying the terms and conditions of such
plans, the Purchaser shall give full credit for eligibility and vesting (but not
benefit accrual) for each participant's period of service with the Company prior
to the Effective Time. To the extent the Purchaser's benefit plans provide
medical or dental welfare benefits after the Effective Time, the Purchaser shall
cause all pre-existing condition exclusions and actively at work requirements to
be waived to the extent such exclusions and work requirements have been
satisfied under medical and dental plans in place on the date hereof and the
Purchaser shall provide that any expenses incurred on or before the Effective
Time shall be taken into account under the Purchaser's benefit plans for
purposes of satisfying the applicable deductible, coinsurance and maximum
out-of-pocket provisions for such employees and their covered dependents.
6.9 Indemnification of Directors and Officers of the Company.
(a) For a period of six (6) years after the Effective Time, the Purchaser
agrees to indemnify and hold harmless, and to cause the Surviving Corporation to
honor its separate indemnification to, each person who is an officer or director
of the Company or its Controlled Entities on the date of this Agreement (an
"Indemnified Person") from and against all damages, liabilities, judgments and
claims (and related expenses including, but not limited to, attorney's fees and
amounts paid in settlement) based upon or arising from his or her capacity as an
officer or director of the Company or its Controlled Entities prior to the
Effective Time, to the same extent he or she would have been indemnified under
the Certificate of Incorporation or By-laws of the Company or the applicable
Controlled Entity as such documents were in effect on the date of this Agreement
and to the extent permitted under applicable law.
(b) For a period of six (6) years after the Effective Time, the Surviving
Corporation shall maintain in full force and effect (i) the Company's directors'
and officers' liability insurance policy in existence on February 19, 1999 or
(ii) a substantially similar policy maintained by the Surviving Corporation
providing for coverages of not less than $5,000,000 for acts and/or omissions
alleged to have occurred prior to the Effective Time; provided that (x) the
Surviving Corporation shall not be required to spend an aggregate amount for
such coverage in excess of $380,000; and provided, further, that if the
aggregate premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated to obtain a policy with the best coverage
available, in the reasonable judgement of the Board of Directors of the
Surviving Corporation, for an
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aggregate cost not exceeding such amount, and (y) such policies may in the sole
discretion of the Surviving Corporation be one or more "tail" policies for all
or any portion of the full six (6) year period.
(c) The Purchaser acknowledges that the Surviving Corporation will assume
the Company's obligations under the indemnification agreements listed on Section
5.7(c) of the Company Disclosure Statement.
(d) The rights granted to the Indemnified Persons hereby shall be
contractual rights inuring to the benefit of all Indemnified Persons and shall
survive this Agreement and any merger, consolidation or reorganization of the
Purchaser.
6.10 No Solicitations. Neither the Company nor any of its Controlled
Entities shall (whether directly or indirectly through advisors, agents or other
intermediaries), nor shall the Company or any of its Controlled Entities
authorize or permit any of its or their officers, directors, agents,
representatives, advisors or subsidiaries to, (a) solicit, initiate, encourage
(including by way of furnishing information) or take any action knowingly to
facilitate the submission of any inquiries, proposals or offers (whether or not
in writing) from any person (other than Holdings and its affiliates) relating
to, other than the transactions contemplated by this Agreement, (i) any
acquisition or purchase of 5% or more of the consolidated assets of the Company
and its Controlled Entities or of any class of equity securities of the Company
or any of its Controlled Entities, (ii) any tender offer (including a self
tender offer) or exchange offer that if consummated would result in any person
beneficially owning any class of equity securities of the Company or any of its
Controlled Entities, (iii) any merger, consolidation, business combination, sale
of substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its Controlled Entities
whose assets, individually or in the aggregate, constitute 5% or more of the
consolidated assets of the Company, or (iv) any other transaction the
consummation of which would or would reasonably be expected to impede, interfere
with, prevent or materially delay the Merger or which would or would reasonably
be expected to materially dilute the benefits to Holdings or the Purchaser of
the transactions contemplated by this Agreement (collectively, "Transaction
Proposals"), or agree to or endorse any Transaction Proposal, or (b) enter into
or participate in any discussions or negotiations regarding any of the
foregoing, or furnish to any other person any information with respect to its
business, properties or assets in connection with the foregoing, or otherwise
cooperate in any way with, or knowingly assist or participate in, facilitate or
encourage, any effort or attempt by any other person (other than any of Holdings
and its affiliates) to do or seek any of the foregoing; provided, however, that
the foregoing shall not prohibit the Company, prior to the receipt of the
Requisite Stockholder Approval of the transactions contemplated hereby, (A) from
complying with Rule 14e-2 and Rule 14d-9 under the Exchange Act with regard to a
bona fide tender offer or exchange offer or (B) from participating in
negotiations or discussions with or furnishing information to any person in
connection with a Transaction Proposal not solicited after the date hereof which
is submitted in writing by such person to the Board of Directors of the Company
after the date of this Agreement; provided, however, that prior to participating
in any such discussions or negotiations or furnishing any information, the
Company receives from such person an executed confidentiality agreement on terms
not less favorable to the Company than the Confidentiality Agreement; and
provided, further, that the Board of Directors of the Company shall have
concluded in good faith, after consultation with its outside financial advisors,
that such Transaction Proposal is reasonably likely to constitute a Superior
Proposal (as defined below) and, after consultation with its outside legal
counsel, that participating in such negotiations or discussions or furnishing
such information is required in order to comply with its fiduciary duties to the
stockholders of the Company under applicable law; and provided, further, that
the Board of Directors of the Company shall not (unless it is prohibited from
doing so by the terms of the Transaction Proposal), take any of the foregoing
actions prior to two business days after it provides Holdings with prompt (but
in no event later than 24 hours after the occurrence or commencement of such
action) written notice thereof. If the Board of Directors of the Company
receives a Transaction Proposal, then the Company shall, to the extent not
prohibited in good faith by the terms of such Transaction Proposal, promptly
inform Holdings of the terms and conditions of such proposal and the identity of
the person making it. The Company will immediately cease and cause its advisors,
agents and other intermediaries to cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and shall use its reasonable best efforts to cause any
such parties in possession of confidential information about the Company that
was furnished by or on behalf of the Company to return or destroy all
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such information in the possession of any such party or in the possession of any
agent or advisor of any such party. The Company agrees not to release any third
party from, or waive any provisions of, any confidentiality or standstill
agreement to which the Company is a party. "Superior Proposal" means any of the
transactions described in clause (i), (ii) or (iii) of the definition of
Transaction Proposal (with all of the percentages included in the definition of
such term raised to 51% for purposes of this definition) with respect to which
the Board of Directors of the Company shall have concluded in good faith, after
consultation with its outside legal counsel and financial advisors, is
reasonably likely to be completed, taking into account all legal, financial,
regulatory and other aspects of the Transaction Proposal, including the status
of the financing therefor, and the person making the proposal, and would, if
consummated, result in a transaction more favorable to the Company's
stockholders from a financial point of view than the transactions contemplated
by this Agreement, including the Merger.
6.11 Disposition of Litigation. The Company, Holdings and the Purchaser
shall participate jointly in the defense of any stockholder litigation against
the Company, Holdings or the Purchaser, as applicable, and their respective
affiliates, and the directors, officers, employees, representatives and agents
of the foregoing, relating to the transactions contemplated by this Agreement.
6.12 Financing-Related Cooperation. The Company agrees to provide, and
will cause the Controlled Entities and its and their respective officers,
employees and advisors to provide, all cooperation reasonably necessary in
connection with the arrangement of any financing to be consummated
contemporaneously with or at or after the Closing in respect of the transactions
contemplated by this Agreement, including participation in meetings, due
diligence sessions, road shows, the preparation of offering memoranda, private
placement memoranda, prospectuses and similar documents, the execution and
delivery of any commitment letters, underwriting or placement agreements, pledge
and security documents, other definitive financing documents, or other requested
certificates or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, comfort letters of
accountants and legal opinions as may be reasonably requested by Holdings and
taking such other actions as are reasonably required to be taken by the Company
in the Commitment Letters. In addition, in conjunction with the obtaining of any
such financing, the Company agrees, at the reasonable request of Holdings, to
call for prepayment or redemption, or to prepay, redeem and/or renegotiate, as
the case may be, any then existing indebtedness of the Company and the
Controlled Entities; provided that no such prepayment or redemption shall
themselves actually be made until contemporaneously with or after the Effective
Time.
6.13 Stop Transfer Order. The Company will instruct the Company's
transfer agent that, except as provided in Section 4.4 of each of the
Subscription and Tender Agreements, there is a stop transfer order with respect
to all of the Shares and that the Subscription and Tender Agreements place
limits on the transfer of such Shares.
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of each of the following
conditions (unless waived by each of the parties hereto in accordance with the
provisions of Section 8.8 hereof):
(a) If required by the DGCL, this Agreement shall have been adopted by
the requisite vote of the Company's stockholders.
(b) The Purchaser shall have purchased Shares pursuant to the Offer.
(c) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
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(d) No preliminary or permanent injunction or other order, decree,
statute, rule or regulation shall have been entered by any federal or state
court or federal, state, local or other governmental authority which
prevents the consummation of the Merger shall have been issued and remain
in effect.
7.2 Additional Condition to the Obligations of Holdings and the Purchaser
to Effect the Merger. The obligations of Holdings and the Purchaser to effect
the Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following condition (unless waived by Holdings and the Purchaser in
accordance with the provisions of Section 8.8 hereof):
(a) Funding under the Permanent Facilities (as defined in the NationsBank
Commitment Letter), in the amounts and on the other terms and conditions
(including unused availability under the revolving credit facility) set forth in
the NationsBank Commitment Letter, shall have been received.
ARTICLE VIII
TERMINATION AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the adoption
of this Agreement by the Company's stockholders:
(a) By mutual written consent of Holdings, Purchaser and the Company;
(b) By Holdings or the Company, if any court of competent jurisdiction
or other governmental authority located or having jurisdiction within the
United States shall have issued an order, injunction, decree, judgment or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, injunction, decree,
judgment, ruling or other action is or shall have become final and
nonappealable;
(c) By Holdings, if due to an occurrence or circumstance which
resulted in a failure to satisfy any of the Offer Conditions (other than as
a result of a material breach by Holdings or Purchaser of any of its
obligations hereunder), Purchaser shall have (i) terminated the Offer or
(ii) failed to pay for Shares pursuant to the Offer on or prior to May 31,
1999 (the "Outside Date");
(d) By the Company, prior to the purchase of Shares pursuant to the
Offer, if (i) pursuant to and in compliance with Sections 1.2(b) and 6.2
hereof, the Board of Directors of the Company withdraws, modifies or amends
in a manner adverse to Holdings or the Purchaser any of its recommendations
described in Section 1.2(a)(i) hereof (or publicly announces its intention
to do so), or (ii) the Company or its Board of Directors approves a
Superior Proposal; provided, however, that (A) the Company shall have
complied with Section 6.10, (B) the Board of Directors of the Company shall
have concluded in good faith, after consultation with its outside legal
counsel and financial advisors, that such proposal is a Superior Proposal
and (C) the Board of Directors of the Company shall have concluded in good
faith, after consultation with its outside legal counsel, that approving
and entering into an agreement in connection with, and consummating, such
Superior Proposal is required in order to comply with its fiduciary duties
to the stockholders of the Company under applicable law; provided, that
this Agreement may not be terminated pursuant to this Section 8.1(d) unless
(x) concurrently with such termination, the Company pays to Holdings the
Termination Fee (as hereinafter defined) and (y) the Company shall have
provided Holdings with at least two business days advance notice of such
termination.
(e) By the Purchaser, prior to the purchase of Shares pursuant to the
Offer, if the Company or its Board of Directors shall have (i) withdrawn,
modified or amended in any respect adverse to Holdings or the Purchaser any
of its recommendations described in Section 1.2(a)(i) hereof (or publicly
announced its intention to do so), (ii) failed as promptly as reasonably
practicable to mail the Schedule 14D-9 to its stockholders or failed to
include in such Schedule 14D-9 such recommendations, (iii) approved,
recommended or entered into an agreement with respect to, or consummated,
any Transaction Proposal from a person other than Holdings or any of its
affiliates, (iv) resolved to do any of the foregoing, or (v) in response to
the commencement of any tender offer or exchange offer (other than the
Offer) for
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outstanding shares of Company Common Stock, not recommended rejection of
such tender offer or exchange offer.
(f) By the Company, prior to the purchase of Shares pursuant to the
Offer, if (i) Holdings or the Purchaser breaches any of its
representations, warranties, covenants or agreements contained in this
Agreement and such breach is reasonably likely to have a Material Adverse
Effect on Holdings and, with respect to any such breach that is reasonably
capable of being remedied, the breach is not remedied prior to the earlier
of (x) 20 days after the Company has furnished Holdings with written notice
of such breach or (y) two business days prior to the date on which the
Offer expires, or (ii) Purchaser shall have (A) terminated the Offer or (B)
failed to pay for Shares pursuant to the Offer on or prior to the Outside
Date (unless such failure is caused by or results from the breach by the
Company of any of its representations, warranties, covenants or agreements
contained in this Agreement).
(g) By Holdings, if (i) the Company breaches any of its
representations, warranties, covenants or agreements contained in this
Agreement and such breach is reasonably likely to have a Material Adverse
Effect on the Company and, with respect to any such breach that is
reasonably capable of being remedied, the breach is not remedied prior to
the earlier of (x) 20 days after Holdings has furnished the Company with
written notice of such breach or (y) two business days prior to the date on
which the Offer expires, or (ii) the Minimum Condition shall not have been
satisfied by the expiration date of the Offer as it may have been extended
pursuant hereto and on or prior to such date (A) any person (including the
Company but not including any of Holdings and its other affiliates) shall
have made a public announcement, public disclosure or other formal
communication to the Company or its stockholders with respect to a
Transaction Proposal or (B) any person (including the Company or any of its
Controlled Entities), other than Holdings or any of its affiliates, shall
have become (and remain at the time of termination) the beneficial owner of
19.9% (provided that any person who on the date hereof beneficially owns
19.9% or more of the Shares shall not have become the beneficial owner of
an additional 3% of the Shares) or more of the Shares (unless such person
shall have tendered and not withdrawn such person's Shares pursuant to the
Offer).
8.2 Termination Fees and Expenses.
(a) The Company shall (provided that neither Holdings nor the Purchaser is
then in material breach of its obligations under this Agreement) upon the
termination of this Agreement in accordance with Section 8.1(c) (if such
termination shall have occurred, in whole or in part, by reason of the failure
of any of the Offer Conditions set forth in paragraphs (a), (b), (d), (e), (f)
and (i) or the Financing Condition (unless such financing is not received due to
(i) the occurrence of a material disruption of or material adverse change in
financial, banking or capital market conditions, (ii) a competing offering,
placement or arrangement of debt securities or bank financing by or on behalf of
the Company or any Controlled Entity thereof that was undertaken by, on behalf
of (with Holdings' or Purchaser's consent), or at the direction of Holdings or
its affiliates, or (iii) a material disruption or material adverse change in the
market for new issues of high yield securities or the financial or capital
markets in general)), Section 8.1(d), Section 8.1(e), Section 8.1(f) (ii) (if
Holdings could have terminated this Agreement pursuant to Section 8.1(c) and
such termination would have occurred, in whole or in part, for any of the
reasons set forth earlier in this sentence with respect to a termination
pursuant to Section 8.1(c)) or Section 8.1(g), promptly, but in no event later
than two business days following written notice thereof, together with
reasonable supporting documentation, reimburse Holdings and the Purchaser, in an
aggregate amount of up to $3,000,000, for all reasonable out-of-pocket expenses
and fees (including fees payable to all banks, investment banking firms and
other financial institutions, and their respective agents and counsel, and all
fees of counsel, accountants, financial printers, advisors, experts and
consultants to Holdings and its affiliates), whether incurred prior to,
concurrently with or after the execution of this Agreement, in connection with
the Offer or the Merger or the consummation of any other transaction
contemplated by this Agreement or the Stockholder Documents, the financing
thereof or consents related hereto (collectively, the "Expenses"). Such payment,
together with any Termination Fee which may be paid, shall serve as full
liquidated damages in respect of such breach, and Holdings and the Purchaser
hereby waive all claims against the Company and its Controlled Entities in
respect of the breach or breaches occasioning the payment pursuant to this
Section 8.2(a). It is understood that in the event that the Purchaser is paid a
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Termination Fee (as defined in Section 8.2(b) below), to the extent not
previously paid, no amounts shall be payable as Expenses.
(b) In the event that this Agreement is terminated by the Company pursuant
to Section 8.1(d) or by the Purchaser pursuant to Section 8.1(e), the Company
shall pay to Holdings by wire transfer of immediately available funds to an
account designated by Holdings on the next business day following such
termination (or, in the case of a termination pursuant to Section 8.1(d), prior
to the effectiveness of such termination) an amount equal to $6,400,000 (the
"Termination Fee") less any amount previously paid to Holdings in respect of
Expenses.
(c) If all of the following events have occurred:
(i) a Transaction Proposal is commenced, publicly disclosed, publicly
proposed or otherwise formally communicated to the Company or its
stockholders at any time on or after the date of this Agreement but prior
to any termination of this Agreement and either (A) Holdings terminates
this Agreement pursuant to Section 8.1(c) (unless such termination shall
have occurred, in whole or in part, due to the failure of the condition set
forth in paragraph (c) of Annex A or the Financing Condition due to, in the
case of the failure of the Financing Condition, (i) the occurrence of a
material disruption of or material adverse change in financial, banking or
capital market conditions, (ii) a competing offering, placement or
arrangement of debt securities or bank financing by or on behalf of the
Company or any Controlled Entity thereof that was undertaken by or on
behalf of (with Holdings' or Purchaser's consent), or at the direction of
Holdings or any of its affiliates, or (iii) a material disruption or
material adverse change in the market for new issues of high yield
securities or the financial or capital markets in general) or (B) the
Company terminates this Agreement pursuant to Section 8.1(f)(ii) or (C)
Holdings terminates this Agreement pursuant to Section 8.1(g); and
(ii) thereafter, within 12 months of the date of such termination, the
Company enters into a definitive agreement with respect to, or consummates,
the Transaction Proposal referred to in clause (i) above or a Superior
Proposal (whether or not such Superior Proposal was commenced, publicly
disclosed, publicly proposed or otherwise communicated to the Company or
its stockholders prior to such termination);
then, the Company shall pay to Holdings, concurrently with the earlier of
the execution of such definitive agreement or the consummation of such
Transaction Proposal, an amount equal to the Termination Fee (less any
amount previously paid to Holdings in respect of Expenses).
(d) Purchaser shall (provided that the Company is not then in material
breach of any of its representations, warranties or obligations hereunder),
following the termination of this Agreement in accordance with Section 8.1(f)
(if such termination shall have occurred by reason of a material breach by
Holdings or Purchaser of any of its material obligations hereunder), promptly,
but in no event later than two business days following written notice thereof,
together with reasonable supporting documentation, reimburse the Company, in an
aggregate amount of up to $1,000,000, for all reasonable out-of-pocket expenses
and fees (including those payable to investment banking firms and other
financial institutions, and their respective agents and counsel, and all fees of
counsel, accountants, financial printers, advisors, experts and consultants to
the Company and its affiliates), whether incurred prior to, concurrently with or
after the execution of this Agreement, in connection with the Offer or the
Merger or the consummation of any other transaction contemplated hereby or by
the Stockholder Documents, the financing hereof or consents related hereto. Such
payment shall serve as full liquidated damages in respect of such breach and the
Company hereby waives, on behalf of itself and its Controlled Entities, all
claims against Holdings and its affiliates in respect of the breach or breaches
occasioning the payment pursuant to this Section 8.2(d).
(e) Except as otherwise specifically provided herein, each party shall bear
its own expenses in connection with this Agreement and the transactions
contemplated hereby; provided that all expenses of Holdings and the Purchaser
shall be paid by the Surviving Corporation at or following the Effective Time.
8.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
all obligations of the parties hereto shall terminate,
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except the obligations of the parties pursuant to the provisions of Sections
6.6, 8.2, 8.3 and 9.6, which obligations shall survive the termination of this
Agreement.
8.4 Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto; and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements. The
representations and warranties in this Agreement and in any instrument delivered
pursuant hereto shall expire at the Effective Time or upon the termination of
this Agreement pursuant to Article VIII, as the case may be. All agreements in
this Agreement to be fully performed prior to the Effective Time shall terminate
at the Effective Time and all other agreements shall survive the Effective Time.
Except as expressly provided otherwise in Section 8.3, all agreements in this
Agreement shall terminate upon the termination of this Agreement pursuant to
Article VIII.
9.2 Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given five (5) business days after being deposited in the United
States mail, postage prepaid, registered or certified mail. Notices delivered by
hand by facsimile, or by nationally recognized private carrier shall be deemed
given on the day following receipt; provided, however, that a notice delivered
by facsimile shall only be effective if such notice is also delivered by hand,
or deposited in the United States mail, postage prepaid, registered or certified
mail, on or before two (2) business days after its delivery by facsimile. All
notices shall be addressed as follows:
If to Holdings or the Purchaser:
c/o Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attn: James L. Elrod, Jr.
Facsimile: (212) 808-4922
With copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attn: Peter J. Gordon, Esq
Facsimile: (212) 455-2502
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If to the Company:
Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 400
Hollywood, FL 33021
Attn: Mitchell Eisenberg, M.D.
Chairman, President and Chief Executive Officer
and
Jay A. Martus, Esq.
Vice President and General Counsel
Facsimile: (954) 987-8359
With copies to:
Akerman, Senterfitt & Eidson P.A.
One S.E. 3rd Avenue, 28th Floor
Miami, Florida 33131
Attn: Stephen K. Roddenberry, Esq.
Facsimile: (305) 374-5095
or to such other address as any party shall specify by written notice so given.
9.3 Assignment, Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that the Purchaser may assign all
or any of its rights and obligations hereunder to any direct or indirect wholly
owned subsidiary or subsidiaries of Holdings, provided that no such assignment
shall relieve the assigning party of its obligations hereunder if such assignee
does not perform such obligations. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
9.4 Entire Agreement. This Agreement, the Stockholder Documents, the
Disclosure Statements of the Company and the Purchaser, the Exhibits and Annex
hereto and the Confidentiality Agreement constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
9.5 Amendment. This Agreement may be amended by the parties hereto at any
time prior to the Effective Time, before or after the adoption of this Agreement
by the stockholders of the Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
9.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
9.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only and shall be given no substantive or
interpretive effect whatsoever.
9.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
9.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a
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waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
9.11 Incorporation of Exhibits. The Disclosure Statements of the Company
and the Purchaser attached hereto and referred to herein are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein.
9.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ JAMES L. ELROD
------------------------------------
Title: President
VESTAR/CALVARY, INC.
By: /s/ JAMES L. ELROD
------------------------------------
Title: President
SHERIDAN HEALTHCARE, INC.
By: /s/ MITCHEL EISENBERG
------------------------------------
Title: President
31
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ANNEX A
OFFER CONDITIONS
The capitalized terms used in this Annex A have the meanings set forth in
the attached Agreement, except that the term "Merger Agreement" shall be deemed
to refer to the attached Agreement.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for any Shares
tendered pursuant to the Offer, and may postpone the acceptance for payment or,
subject to the restriction referred to above, payment for any Shares tendered
pursuant to the Offer, and may amend or terminate the Offer (whether or not any
Shares have theretofore been purchased or paid for) if, prior to the expiration
of the Offer, (i) a number of shares of Company Common Stock which, together
with any Shares owned by Holdings or Purchaser, or any controlled affiliate
thereof, constitutes at least a majority of the voting power (determined on a
fully-diluted basis), on the date of purchase, of all the securities of the
Company entitled to vote generally in the election of directors or in a merger
shall not have been validly tendered and not properly withdrawn prior to the
expiration of the Offer (the "Minimum Condition"), (ii)(A) Purchaser shall not
have received funding for the Offer (1) sufficient to pay for all Shares
tendered pursuant to the Offer and not validly withdrawn and to pay all fees and
expenses related to the Offer and (2) otherwise on the terms and subject to the
conditions set forth in the NationsBank Commitment Letter and (B)(1) the
Permanent Facilities (as defined in the NationsBank Commitment Letter) shall not
have been fully executed and delivered or shall not be in full force or effect
or (2) all conditions to funding under the Permanent Facilities that are
required to be, or are capable of being, satisfied prior to the purchase of the
Shares pursuant to the Offer shall not have been satisfied or (3) there is
reason to believe that any of the other conditions to funding under the
Permanent Facilities will not be satisfied prior to the termination of the
Merger Agreement or the Permanent Facilities, or (iii) at any time on or after
the date of the Merger Agreement and prior to the acceptance for payment of
Shares, any of the following conditions occurs or has occurred or Purchaser
makes a good faith determination that any of the following conditions has
occurred:
(a) there shall be pending or threatened by any governmental authority
any suit, action or proceeding, or any preliminary or permanent injunction
or order, decree, statute, rule or regulation shall have been entered by
any federal or state court or other governmental authority, or statute,
rule, regulation, legislation, interpretation, judgment or order proposed,
sought, enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to Holdings or the Company or any affiliate of Holdings or the
Company or the Offer or the Merger, (i) challenging or seeking to restrain
or prohibit or make materially more costly the making of the Offer, the
acceptance for payment of, or payment for, some of or all the Shares by
Purchaser or any of its affiliates or the consummation of any of the other
transactions contemplated by the Merger Agreement or seeking to materially
delay the Merger or obtain from Holdings or any of its affiliates material
damages; (ii) seeking to prohibit or limit the ownership or operation by
the Company or any of its Controlled Entities or Holdings or any of
Holdings' affiliates of all or any material portion of the business or
assets of the Company or any of its Controlled Entities or Holdings, or any
of its affiliates, or seeking to compel Holdings, Purchaser or any of
Holdings' affiliates to dispose of or hold separate all or any material
portion of the business or assets of the Company or any of its Controlled
Entities or Holdings or any of its affiliates; (iii) seeking to impose or
confirm limitations on the ability of Holdings or any of Holdings'
affiliates effectively to acquire or hold or to exercise full rights of
ownership of Shares, including without limitation the right to vote any
Shares on all matters properly presented to the stockholders of the
Company, including without limitation the adoption of the Merger Agreement,
or the right to vote any shares of capital stock of any subsidiary directly
or indirectly owned by the Company; or (iv) seeking to require divestiture
by Holdings or any of Holdings' affiliates of any Shares;
(b) there shall have occurred any event that has had or would be
reasonably likely to have a Material Adverse Effect on the Company;
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<PAGE> 37
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) a
decline of at least 25% in either the Dow Jones Average of Industrial
Stocks or the Standard & Poor's 500 index from the date hereof, (iii) any
material adverse change or any existing or threatened condition, event or
development involving a prospective material adverse change in United
States or other material international currency exchange rates or a
suspension of, or limitation on, the markets therefor, (iv) a declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States, (v) any limitation (whether or not mandatory) by any
government or governmental, administrative or regulatory authority or
agency, domestic or foreign, on, or any other event that, in the reasonable
judgment of Purchaser, could reasonably be expected to materially adversely
affect the extension of credit by banks or other lending institutions, (vi)
a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
(except for any such event involving Serbia or Iraq) or materially
adversely affecting (or materially delaying) the consummation of the Offer
or (vii) in the case of any of the foregoing existing at the time of
commencement of the Offer, a material acceleration or worsening thereof;
(d) All material licenses, permits, consents, authorizations,
qualifications, orders and approvals of (or filings with) any governmental
authority or other third party (including, without limitation, the consents
of the Company's creditors and of South Broward Hospital District) required
to be obtained, made or received in connection with the execution, delivery
and performance of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby shall not have been
obtained, made or received in form and substance reasonably satisfactory to
Holdings.
(e) any of the representations and warranties of the Company contained
in the Merger Agreement shall not be true and correct in any material
respect, in each case as if such representations and warranties were made
at the time of such determination;
(f) the Company shall have failed to perform in any material respect
any agreement of the Company contained in the Merger Agreement that is
required to be performed by it prior to the time of such determination;
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company;
(h) any waiting period under the HSR Act applicable to the purchase of
Shares pursuant to the Offer shall not have expired or been terminated; or
(i) to the Company's knowledge, the Company or a Controlled Entity of
the Company is under investigation for any violation of the "Stark" laws,
anti-kickback laws or the laws relating to Medicare, Medicaid, Champus or
any rules or regulations related thereto:
which, in the reasonable judgment of Purchaser with respect to each and
every matter referred to above and regardless of the circumstances
(including any action or inaction by Purchaser or any of its affiliates
other than a breach of the Merger Agreement) giving rise to any such
condition, makes it inadvisable to proceed with the Offer or with such
acceptance for payment of or payment for Shares or to proceed with the
Merger.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition or may be waived by Purchaser in whole or in part at any time and from
time to time in its sole discretion (subject to the terms of the Merger
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
A-2
<PAGE> 1
Exhibit (c) (2)
EXECUTION COPY
================================================================================
STOCKHOLDERS AGREEMENT
dated as of March 24, 1999
among
VESTAR/CALVARY HOLDINGS, INC.,
SHERIDAN HEALTHCARE, INC.,
VESTAR/CALVARY INVESTORS, LLC,
MITCHELL EISENBERG,
LEWIS D. GOLD,
MICHAEL F. SCHUNDLER,
JAY A. MARTUS
and
THE OTHER MANAGEMENT INVESTORS
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.......................................................1
1.1 Defined Terms.....................................................1
1.2 Other Definitional Provisions; Interpretation....................10
SECTION 2. VOTING AGREEMENTS................................................11
2.1 Election of Directors............................................11
2.2 Other Voting Matters.............................................12
SECTION 3. TRANSFERS AND ISSUANCES..........................................12
3.1 Transfers to be Made Only as Permitted or
Required by this Agreement ......................................12
3.2 Permitted Transfers..............................................13
3.3 Effect of Void Transfers.........................................13
3.4 Legend on Securities.............................................13
3.5 Tag-Along Rights.................................................14
3.6 Public Offerings, etc. ..........................................15
3.7 Drag-Along Rights................................................16
3.8 Rights of First Refusal..........................................16
3.9 Participation Right..............................................18
3.10 Partial Transfers Following a Qualified Public Offering..........19
3.11 Partial Transfers to Cover Option-Related Tax Payments...........19
3.12 Transfers to Other Management Investors. .......................20
3.13 Call Right.......................................................20
3.14 Put Right........................................................22
SECTION 4. REGISTRATION RIGHTS..............................................24
4.1 Demand Registration..............................................24
4.2 Incidental Registration..........................................25
4.3 Registration Procedures..........................................27
4.4 Underwritten Offerings...........................................30
4.5 Preparation; Reasonable Investigation............................31
4.6 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants.....................................31
4.7 Expenses.........................................................32
4.8 Indemnification..................................................33
4.9 Participation in Underwritten Registrations......................34
4.10 Rule 144.........................................................35
4.11 Holdback Agreements..............................................35
4.12 Mezzanine Securities.............................................35
SECTION 5. MISCELLANEOUS....................................................36
5.1 Additional Securities Subject to Agreement.......................36
-i-
<PAGE> 3
5.2 Termination......................................................36
5.3 Injunctive Relief................................................36
5.4 Other Stockholders' Agreements...................................36
5.5 Amendments.......................................................36
5.6 Successors, Assigns and Transferees..............................36
5.7 Notices..........................................................36
5.8 Integration......................................................37
5.9 Severability.....................................................37
5.10 Counterparts.....................................................37
5.11 Governing Law....................................................38
5.12 Jurisdiction.....................................................38
5.13 Management Investors.............................................38
5.14 83(b) Election...................................................38
5.15 Management Investor Representative...............................38
5.16 Covenant Not to Compete..........................................39
5.17 Business Opportunities...........................................39
5.18 Confidentiality..................................................40
5.19 Effectiveness....................................................40
SCHEDULE 1 - Initial Other Management Investors
-ii-
<PAGE> 4
STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among
Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan
Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors,
LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis
D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior
Management Investors") and the other persons listed on Schedule 1 hereto
(collectively, together with the persons identified in the supplementary
agreements referred to in Section 5.13 hereof, the "Other Management
Investors"). The Senior Management Investors and the Other Management Investors
are collectively referred to herein as the "Management Investors".
W I T N E S S E T H :
WHEREAS, the Company, the Senior Management Investors and the Other
Management Investors listed on Schedule 1 hereto have entered into subscription
and tender agreements dated as of the date hereof (the "Subscription and Tender
Agreements");
WHEREAS, pursuant to the Subscription and Tender Agreements and on
the terms and subject to the conditions set forth therein, the Senior Management
Investors and the Other Management Investors listed on Schedule 1 hereto have
agreed to purchase shares of common stock of the Company;
WHEREAS, the Company, Sheridan, Vestar and the Management Investors
desire to make certain arrangements among themselves with respect to matters set
forth herein; and
WHEREAS, it is a condition to the consummation of the closings under
the Subscription and Tender Agreements that this Agreement (as defined below)
shall have been duly authorized, executed and delivered by each of the parties
hereto and be in full force and effect;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, terms defined in the
headings and the recitals shall have their respective assigned meanings, and the
following capitalized terms shall have the meanings ascribed to them below:
"Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company.
"Affiliate" means, with respect to any Person, (i) any Person that
directly or indirectly controls, is controlled by or is under common control
with, such Person, or (ii) any director, officer, partner or employee of such
Person or any Person specified in clause (i) above, or
(iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or
sibling of any Person specified in clause (i) or (ii) above.
<PAGE> 5
2
"Aggregate Investment" shall have the meaning ascribed to such term
in the definition of "Lapse Date."
"Agreement" means this Stockholders Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Applicable Percentage" shall mean (i) for the period from the
Closing Date through the day immediately preceding the first anniversary of the
Closing Date, 0%, (ii) for the period from the first anniversary of the Closing
Date through the date immediately preceding the second anniversary of the
Closing Date, 25%, (iii) for the period from the second anniversary of the
Closing Date through the day immediately preceding the third anniversary of the
Closing Date, 50%, (iv) for the period from the third anniversary of the Closing
Date through the day immediately preceding the fourth anniversary of the Closing
Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%.
"Business Day" means a day other than a Saturday, Sunday, holiday or
other day on which commercial banks in New York City or Miami, Florida are
authorized or required by law to close.
"Call Notice" shall have the meaning ascribed to such term in
Section 3.13(a).
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Management Investor and the Company or any of
its Subsidiaries which is in effect as of or after the Closing Date (as the same
may be amended in accordance with the terms thereof) or, if not defined therein
or if there shall be no such agreement, "Cause" shall exist if a Management
Investor has (i) committed an act of fraud, embezzlement, misappropriation or
breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary
of the Company or Sheridan or a felony involving the business, assets, customers
or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan or has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material breach
of any written confidentiality, non-compete, non-solicitation or business
opportunity covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Management Investor's duties to Sheridan,
the Company or any Subsidiary, including by committing a material breach of any
written covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty (30)
days after delivery to the Management Investor by Sheridan of written notice
thereof; or (iv) breached the Management Investor's obligations pursuant to
Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's
substance abuse policy.
"Closing Date" shall have the meaning ascribed to such term in the
Subscription and Tender Agreements.
<PAGE> 6
3
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute. Any reference herein to a particular
provision of the Code shall mean, where appropriate, the corresponding provision
in any successor statute.
"Columbia" means the hospitals and ambulatory surgical facilities
owned by Columbia/HCA Healthcare, Inc.
"Common Stock" means the common stock of the Company or common
equity securities, or securities exchangeable or exercisable for or convertible
into common equity securities, of any Person into or for which Common Stock is
converted, exchanged or received in an Exit Transaction.
"Common Stock Equivalents" means any stock, warrants, rights, calls,
options or other securities exchangeable or exercisable for or convertible into
Common Stock.
"Company" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include any Person who, in connection
with an Exit Transaction, becomes the issuer of Common Stock.
"Competitive Enterprise" means any Person the activities, products
or services of which (A) are competitive with activities, products or services
of the Company or any of its Controlled Entities (as defined in the Merger
Agreement) in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Management Investor's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services, including without
limitation, the provision of anesthesia services, pain management services,
emergency room services, primary medical care services, neonatology,
perinatology and radiology services; (2) the provision of Payor Services; (3)
the provision of administrative services for medical services and Payor
Services, including without limitation, quality assurance services, utilization
management services, billing services, recruitment services and medical
management information services; or (4) the provision of services or products of
any nature to Columbia.
"Confidential Information" shall have the meaning ascribed to such
term in Section 5.18(a).
"Cost" means the purchase price per share of Common Stock paid by
the applicable Management Investor determined by dividing (x) the total purchase
price paid by such Management Investor on the date of purchase of such share by
(y) the number of shares of Common Stock purchased by such Management Investor
on such date, as adjusted by the Board of Directors of the Company in good faith
and on a consistent basis to reflect Exit Transactions and stock splits, stock
dividends, recapitalizations and other similar transactions.
"Cost Securities" shall have the meaning ascribed to such term in
Section 3.13(f).
"Custody Agreement and Power of Attorney" shall have the meaning
ascribed to such term in Section 4.2(c)
<PAGE> 7
4
"DGCL" shall have the meaning ascribed to such term in Section 5.11.
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Management Investor and the Company or
any of its Subsidiaries which is in effect as of or after the Closing Date (as
the same may be amended in accordance with the terms thereof) or, if not defined
therein or if there shall be no such agreement, as defined in Sheridan's
long-term disability plan as in effect from time to time or if, there shall be
no plan or if not defined therein, the Management Investor's becoming physically
or mentally incapacitated and consequent inability for a period of six (6)
months in any twelve (12) consecutive month period to perform the Management
Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the
Company.
"Effective Time" shall have the meaning ascribed to such term in the
Merger Agreement.
"Exit Transaction" shall have the meaning ascribed to such term in
the definition of "Lapse Date."
"Equity Interests" shall have the meaning ascribed to such term in
Section 3.9(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
"Fair Market Value" shall mean, as of any date of determination,
with respect to shares of Common Stock, (x) prior to a Qualified Public
Offering, the fair market value of the shares, disregarding any discount for
minority interest, restrictions on transfer of the shares or lack of
marketability of the shares, as determined in good faith and on a consistent
basis by the Board of Directors of the Company, giving due consideration to,
among other things, the earnings and other financial and operating information
of the Company, Sheridan and its Subsidiaries in recent periods, the future
prospects of the Company, Sheridan and its Subsidiaries, the general condition
of the securities markets and the fair market value of securities of companies
of a similar size and engaged in businesses similar to the business of the
Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public
Offering, the price per share of Common Stock equal to the average of the last
sales price of a share of Common Stock on each of the last five trading days
prior to the date of determination (the "FMV Calculation Period") on each
exchange on which the Common Stock may at the time be listed or, if there shall
have been no sales on any of such exchanges during the FMV Calculation Period,
the average of the closing bid and asked prices on each such exchange on each
day during the FMV Calculation Period or, if there are no such bid and asked
prices during the FMV Calculation Period, on the next preceding five dates on
which such bid and asked prices occurred or, if Common Stock shall not be so
listed, the average of the closing sales prices as reported by NASDAQ during the
FMV Calculation Period in the over-the-counter market.
"Family Group" shall have the meaning ascribed to such term in
Section 3.2(a).
<PAGE> 8
5
"Financing Default" shall mean an event which constitutes (or which
with notice or lapse of time or both would constitute) an event of default
(which event of default has not been cured or waived) under any of the following
as originally entered into or as they may be amended from time to time: (i) any
agreement or instrument under which indebtedness of any of the Company and its
Subsidiaries is outstanding as of the time of the aforementioned event, and any
extensions, renewals, refinancings or refundings thereof in whole or in part;
(ii) any provision of the Company's or any of its Subsidiaries' certificates of
incorporation or other organizational documents as in effect on the date hereof;
(iii) any amendment of, supplement to or other modification of any of the
instruments referred to in clauses (i) or (ii) above; and (iv) any of the
securities issued pursuant to or whose terms are governed by the terms of any of
the agreements set forth in clauses (i) and (ii) above, and any extensions,
renewals, refinancings or refundings thereof in whole or in part.
"FMV Calculation Period" shall have the meaning ascribed to such
term in the defined term "Fair Market Value".
"Good Reason" shall mean, if the Management Investor has entered
into an employment agreement with Sheridan, the Company or any of its
Subsidiaries which is in effect as of or after the Closing Date (as the same may
be amended in accordance with the terms hereof) the occurrence of such events
which, under the terms of such employment agreement, would expressly enable the
Management Investor to resign from employment and be treated under such
employment agreement as though the Management Investor's employment had been
terminated by the Company without "cause" or, if the employment agreement does
not include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of
Sheridan or the Company has failed to pay the Management Investor his salary;
(ii) the office where the Management Investor performs his duties is moved more
than 30 miles from where the Management Investor performed the Management
Investor's duties on the Closing Date; (iii) a substantial reduction of the
Management Investor's base salary (other than an across the board reduction
similarly affecting other comparable employees of Sheridan, the Company or its
Subsidiaries) or a substantial diminution of the Management Investor's duties,
which, in each case, has not been remedied within a reasonable time specified by
the Management Investor that is not less than thirty (30) days after delivery to
Sheridan of written notice describing the event constituting Good Reason.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Health Care Provider" means any physician, nurse, technician or
allied health care provider providing medical services on behalf of Sheridan or
any of its Affiliates on a full or part-time basis as an independent contractor
or consultant.
"Initial Call Period" shall have the meaning ascribed to such term
in Section 3.13(f).
<PAGE> 9
6
"Initial Public Offering" means the first Public Offering occurring
after the date hereof.
"Issuance" shall have the meaning ascribed to such term in Section
3.9(a).
"Junior Subordinated Note" shall have the meaning ascribed to such
term in Section 3.13(g).
"Lapse Date" means the earlier of (x) the fifth anniversary of the
Closing Date and (y) the date of the sale, exchange or other disposition by
Vestar and its Affiliates, in one or a series of transactions (including,
without limitation, by way of merger, reorganization, recapitalization,
consolidation, sale of capital stock or assets of Sheridan or any other
Subsidiary of the Company, or similar transaction that results in the
disposition, directly or indirectly, of the equity interests of Vestar and its
Affiliates (other than the Management Investors) in the Company) (collectively,
an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in
the Company immediately following the Closing Date plus (2) any additional
capital contributions to, or investments in, the Company made by any of Vestar
and its Affiliates after the Closing Date (clauses (1) and (2), collectively,
the "Aggregate Investment"); provided that, in the case of clause (y), either
(A) the consideration received by Vestar and its Affiliates in the Exit
Transaction for 70% or more of the Aggregate Investment is cash or securities
that are distributed in kind to the limited partners of Vestar Capital Partners
III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction
results in (i) designees of Vestar and its Affiliates not constituting a
majority of the Board of Directors (or analogous governing body) of the Company
and (ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding securities of the Company entitled to vote generally in the election
of directors (or members of an analogous governing body) of the Company.
"Majority Selling Stockholders" shall have the meaning ascribed to
such term in Section 4.7.
"Management Investors" shall have the meaning ascribed to such term
in the preamble to this Agreement.
"Management Investor Offeree" shall have the meaning ascribed to
such term in Section 3.8(a).
"Manager Investor Representative" shall have the meaning ascribed to
such term in Section 5.15.
"Management Investor's Transfer Group" shall have the meaning
ascribed to such term in Section 3.8(a).
"Measurement Date" shall have the meaning ascribed to such term in
Section 3.10.
<PAGE> 10
7
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs, PHOs,
MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals,
clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid
intermediaries.
"Merger" shall have the meaning ascribed to such term in the Merger
Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated as
of the date hereof among Sheridan, the Company and Acquisition, as the same may
be amended, supplemented or otherwise modified from time to time, pursuant to
which, among other things, Acquisition will merge into Sheridan, with Sheridan
constituting the surviving corporation.
"Mezzanine Securities" means securities of the Company, excluding
Common Stock, but including preferred stock and warrants to purchase Common
Stock, issued to any of Vestar and its Affiliates prior to the Effective Time,
and any securities into or for which such securities are exchangeable.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"No Call Notice" shall have the meaning ascribed to such term in
Section 3.13(e).
"No ROFR Notice" shall have the meaning ascribed to such term in
Section 3.8(g).
"Non-Competition Period" means with respect to each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a non-competition provision, the period commencing on the last day of
the Term of Employment and ending on the first anniversary of the last day of
the Term of Employment.
"Offeror" shall have the meaning ascribed to such term in Section
3.8(a).
"Option" means any option to acquire Common Stock or other capital
stock of the Company, including without limitation, all options granted under
the Company's 1999 Stock Option Plan.
"Option Shares" means all Common Stock or other capital stock of the
Company received by a Management Investor upon the exercise or other settlement
of an Option.
"Other Capital Stock" shall have the meaning ascribed to such term
in Section 3.9(a)(i).
"Other Capital Stock Equivalents" shall have the meaning ascribed to
such term in Section 3.9(a)(ii).
<PAGE> 11
8
"Other Management Investors" shall have the meaning ascribed to such
term in the preamble to this Agreement.
"Payor Services" means payor services in the area of managed care,
third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs,
capitation pools and other similar arrangements.
"Permitted Payment" shall have the meaning ascribed to such term in
Section 3.13(g).
"Permitted Transferee" has the meaning ascribed to such term in
Section 3.2(a).
"Person" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust, unincorporated
association, joint venture, Governmental Authority or other entity of any nature
whatsoever.
"Public Offering" means the sale of Securities to the public
pursuant to an effective registration statement filed under the Securities Act.
"Purchased Shares" shall mean, with respect to each Management
Investor, those shares of Common Stock that are purchased by the Management
Investor from the Company (as adjusted in good faith and on a consistent basis
by the Board of Directors of the Company to reflect Exit Transactions and stock
splits, stock dividends, recapitalizations and other similar transactions),
other than pursuant to the exercise of an Option.
"Put Notice" shall have the meaning ascribed to such term in Section
3.14(a).
"Qualified Public Offering" shall mean the sale of Common Stock to
the public after the Effective Time pursuant to an effective registration
statement filed under the Securities Act, which, together with any earlier
registered public sales of Common Stock under the Securities Act occurring after
the Effective Time, results in aggregate gross proceeds to the Company or its
stockholders, or both, of at least $50 million.
"Regulations" means the regulations promulgated under the Code.
"Request" shall have the meaning ascribed to such term in Section
4.1(a).
"Requesting Stockholder" shall have the meaning ascribed to such
term in Section 4.1(a).
"Right" shall have the meaning ascribed to such term in Section
3.9(a).
"Securities" means shares of Common Stock or Common Stock
Equivalents or other securities of the Company, other than (i) debt securities
that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each
case whether owned on the date hereof or hereafter acquired.
<PAGE> 12
9
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"SEC" means the Securities and Exchange Commission.
"Selling Stockholder" shall have the meaning ascribed to such term
in Section 4.3(c).
"Senior Management Investors" shall have the meaning ascribed to
such term in the preamble to this Agreement.
"Sheridan" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include its successors by means of a
merger, consolidation, reorganization, recapitalization or similar transaction.
"Stockholders" means Vestar, the Management Investors, and their
respective Permitted Transferees.
"Subscription and Tender Agreements" shall have the meaning ascribed
to such term in the recitals to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or fifty percent (50%) or more of the
equity interest therein, is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Tag Notice" shall have the meaning ascribed to such term in Section
3.5(b).
"Tagging Stockholder" shall have the meaning ascribed to such term
in Section 3.5(a).
"Term of Employment" means with respect to each Management Investor
who is not a Senior Management Investor and who is not a party to a written
employment agreement with the Company or any of its Subsidiaries that contains a
non-competition provision, any time during the period in which such Management
Investor is employed by the Company or any of its Subsidiaries.
"Third Party" means any Person other than the Company, the
Stockholders and their Affiliates.
"Transfer" means any transfer, sale, assignment, distribution,
exchange, mortgage, pledge, hypothecation or other disposition of any Securities
or any interest therein, including transfers by operation of law in connection
with a merger transaction or otherwise.
<PAGE> 13
10
"Transfer Notice" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Offer" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Securities" shall have the meaning ascribed to such term
in Section 3.8(a).
"Vestar" shall have the meaning ascribed to such term in the
preamble to this Agreement.
"Vested Purchased Shares" shall mean at any time, the number of
Purchased Shares initially acquired by a Management Investor (as adjusted in
good faith and on a consistent basis by the Board of Directors of the Company to
reflect Exit Transactions and stock splits, stock dividends, recapitalizations
and other similar corporate transactions) times the Applicable Percentage.
1.2 Other Definitional Provisions; Interpretation. (a) The words
"hereof", "herein", and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Subsection, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(b) The headings in this Agreement are included for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of this Agreement.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) For purposes of comparing the beneficial ownership of any Person
on the date of execution and delivery of this Agreement to the level of such
ownership at any later time, the level of ownership on such later date shall be
adjusted to eliminate the effect of any subdivision of the Common Stock, any
combination of the Common Stock, any issuance of Common Stock or Common Stock
Equivalents by reason of any reclassification (including, without limitation,
any reclassification in connection with a merger or consolidation), or any
dividend payable in Common Stock or Common Stock Equivalents.
SECTION 2. VOTING AGREEMENTS
2.1 Election of Directors. (a) Each Stockholder hereby agrees that,
so long as this Agreement shall remain in effect, such Stockholder will vote all
of the voting Securities owned or held of record by such Stockholder so as to
elect and, during such period, to continue in office a Board of Directors of the
Company and each Subsidiary of the Company (other than Subsidiaries of
Sheridan), each consisting solely of the following:
(i) 3 designees of Vestar (or its designated Permitted Transferees);
<PAGE> 14
11
(ii) 2 designees of the Management Investors (who shall be Mitchell
Eisenberg and Lewis Gold so long as each of them is an executive officer of
Sheridan); and
(iii) 2 persons to be designated by Vestar (or its designated
Permitted Transferees) in its sole discretion after consultation with the
Management Investor Representative.
(b) If at any time while this Agreement shall remain in effect
Vestar (or its designated Permitted Transferees) shall notify the other
Stockholders of its desire to remove, with or without cause, any director of the
Company or any of its Subsidiaries previously designated by it in accordance
with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities
owned or held of record by it so as to remove such director.
(c) If at any time while this Agreement shall remain in effect any
director previously designated by Vestar (or its Permitted Transferees) or the
Management Investors ceases to serve on the Board of Directors of the Company or
any Subsidiary of the Company (whether by reason of death, resignation, removal
or otherwise), the Stockholder or Stockholders who designated such director
shall be entitled to designate a successor director to fill the vacancy created
thereby on the terms and subject to the conditions of paragraph (a). Each
Stockholder agrees to vote all of the voting Securities owned or held of record
by such Stockholder so as to elect any such director.
(d) The parties hereto hereby agree that any individual designated
as a director of the Company or any Subsidiary of the Company may be removed for
cause (as reasonably determined by the Board of Directors of the Company, other
than such person) with or without the consent of the Stockholder which
designated such individual. No such removal of an individual designated pursuant
to this Section 2.1 shall affect the rights of any of the Stockholders to
designate a different individual pursuant to this Section 2.1.
(e) No fees shall be paid by the Company or any of its Subsidiaries
to any member of their respective Boards of Directors who are employees of
Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a
member of such Board of Directors; provided that the foregoing shall not limit
reimbursement of expenses in accordance with the expense reimbursement policy of
Sheridan and its Subsidiaries.
(f) The Stockholders hereby agree that Vestar (or its designated
Permitted Transferees) shall have sole discretion to determine the composition
of the Company's and its Subsidiaries' Board of Directors' committees (e.g.,
audit, compensation, etc.) through the rights granted to Vestar (or its
designated Permitted Transferees) pursuant to Section 2.1(a)(i).
2.2 Other Voting Matters. (a) Each Management Investor and their
Permitted Transferees hereby agrees that, until the occurrence of the Lapse
Date, such Stockholder will vote all of the Securities owned or held of record
by such Stockholder, either in person or by proxy, whether at a meeting of
stockholders or by executing a written consent, (i) consistent with the vote of
Vestar with respect to the shares of Common Stock beneficially owned by Vestar
and (ii) to ratify, approve and adopt any and all actions adopted or approved by
the Board of Directors of the Company.
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(b) In order to effectuate the provisions of Sections 2.1 and 2.2
hereof, (i) each of the Management Investors and their Permitted Transferees
hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be
Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan,
a proxy to vote at any annual or special meeting of Stockholders, or to take
action by written consent in lieu of such meeting with respect to, or to
otherwise take action in respect of, all of the Securities owned or held of
record by the Management Investors and their Permitted Transferees in connection
with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the
provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is
irrevocable and is coupled with an interest. To effectuate the provisions of
this Section 2, the Secretary of each of the Company and each Subsidiary of the
Company, or if there be no Secretary such other officer of the Company or such
Subsidiary as the Board of Directors of the Company or such Subsidiary may
appoint to fulfill the duties of the Secretary, shall not record any vote or
consent or other action contrary to the terms of this Section 2.
SECTION 3. TRANSFERS AND ISSUANCES
3.1 Transfers to be Made Only as Permitted or Required by this
Agreement.
(a) Each Stockholder hereby agrees that such Stockholder will not,
directly or indirectly, Transfer any Securities unless such Transfer complies
with the provisions hereof and (i) such Transfer is pursuant to an effective
registration statement under the Securities Act and has been registered under
all applicable state securities or "blue sky" laws or (ii) such Stockholder
shall have furnished the Company with a written opinion of counsel reasonably
satisfactory to the Company in form and substance reasonably satisfactory to the
Company to the effect that no such registration is required because of the
availability of an exemption from registration under the Securities Act and all
applicable state securities or "blue sky" laws.
(b) Each Management Investor and their Permitted Transferees hereby
agrees that, except for Transfers in connection with a Public Offering,
Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or
3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no
Transfer shall occur unless the transferee shall agree to become a party to, and
be bound to the same extent as its transferor by the terms of, this Agreement in
accordance with the provisions of Section 5.6 hereof.
(c) Each Management Investor and their Permitted Transferees hereby
agrees that such Stockholder shall not, without the prior written consent of
Vestar (which consent may be withheld by Vestar in its absolute discretion),
effect a Transfer prior to the Lapse Date, except for Transfers in connection
with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10,
3.11, 3.12, 3.13 or 3.14 hereof.
3.2 Permitted Transfers. (a) Any Management Investor may Transfer
any of the Securities beneficially owned by him (i) to his spouse, parent,
descendant, step-child, or step-grandchild or any executor, estate, guardian,
committee, trustee or other fiduciary acting as such solely on behalf or solely
for the benefit of any such spouse, parent, descendant, step-child or
step-grandchild (collectively, a "Family Group"), (ii) to any trust,
corporation, partnership or limited liability company, all of the beneficial
interests in which shall be held, directly or
<PAGE> 16
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indirectly, by such Management Investor and/or one or more of the Family Group
of such Management Investor; provided, however, that during the period that any
such trust, corporation, partnership or limited liability company holds any
right, title or interest in any Securities, no person other than such Management
Investor or members of the Family Group of such Management Investor may be or
become beneficiaries, stockholders, general partners or members thereof, (iii)
which he has purchased on a stock exchange or in the over-the-counter market
after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan,
the Company, Vestar or any of Vestar's Affiliates. A transferee under this
Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee
of Vestar and its Affiliates in a Transfer made in accordance with this
Agreement, is referred to as a "Permitted Transferee."
(b) Notwithstanding anything in this Agreement to the contrary,
Vestar and its Affiliates shall be entitled from time to time, without
compliance with Section 3.5, to Transfer any or all of the Securities
beneficially owed by them to any of their Affiliates who agrees to become a
party to, and be bound to the same extent as its transferor by, the terms of
this Agreement.
3.3 Effect of Void Transfers. In the event of any purported Transfer
of any Securities in violation of the provisions of this Agreement, such
purported Transfer shall be void and of no effect and the Company shall not give
effect to such Transfer.
3.4 Legend on Securities. Each certificate representing Securities
issued to any Stockholder shall bear the following legend on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE
"COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND
THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE
COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF
ANY VOTING RIGHTS GRANTED BY THE SECURITIES."
<PAGE> 17
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3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in
effect, with respect to any proposed Transfer by any of Vestar and its
Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock
permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the
Transferring Stockholder shall have the obligation, and each other Stockholder
(other than Vestar or any of its Affiliates) shall have the right, to require
the proposed transferee to purchase from each such other Stockholder having and
exercising such right (each a "Tagging Stockholder") a number of shares of
Common Stock up to the product (rounded up to the nearest whole number) of (i)
the quotient determined by dividing (A) the aggregate number of shares of Common
Stock beneficially owned on a fully diluted basis by such Tagging Stockholder
and sought by the Tagging Stockholder to be included in the contemplated
Transfer by (B) the aggregate number of shares of Common Stock beneficially
owned on a fully diluted basis by the Transferring Stockholder and all Tagging
Stockholders and sought by the Transferring Stockholder and all Tagging
Stockholders to be included in the contemplated Transfer and (ii) the total
number of shares of Common Stock proposed to be directly or indirectly
Transferred to the transferee in the contemplated Transfer, and at the same
price per share of Common Stock and upon the same terms and conditions
(including without limitation time of payment and form of consideration) as to
be paid and given to the Transferring Stockholder; provided that a Stockholder
shall not be deemed to beneficially own any shares underlying unexercised
Options unless such Options are vested and exercisable as of the date of the Tag
Notice described in Section 3.5(b); and provided further that in order to be
entitled to exercise its right to sell shares of Common Stock to the proposed
transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to
make to the transferee the same representations, warranties, covenants,
indemnities and agreements as the Transferring Stockholder agrees to make in
connection with the proposed Transfer of the shares of Common Stock of the
Transferring Stockholder (except that in the case of representations and
warranties pertaining specifically to the Transferring Stockholder a Tagging
Stockholder shall make the comparable representations and warranties pertaining
specifically to itself); and provided further that all representations,
warranties and indemnities shall be made by Tagging Stockholders severally and
not jointly and that the liability of the Transferring Stockholder and the
Tagging Stockholders (whether pursuant to a representation, warranty, covenant,
indemnification provision or agreement) shall be evidenced in writings executed
by them and the transferee and shall be borne by each of them on a pro rata
basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and
wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a)
shall convert or exercise or exchange such number of Common Stock Equivalents
into or for Common Stock as may be required therefor on or prior to the closing
date of such Transfer.
(b) The Transferring Stockholder shall give notice (a "Tag Notice")
to all relevant Stockholders of each proposed Transfer giving rise to the rights
of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at
least 45 days prior to the proposed consummation of such Transfer, setting forth
the name of the Transferring Stockholder, the number of shares of Common Stock
proposed to be so Transferred, the name and address of the proposed transferee,
the proposed amount and form of consideration, the other terms and conditions of
payment offered by the proposed transferee and the representations, warranties
and indemnities to be made or given by the Transferring Stockholders, and a
representation that the proposed transferee has been informed of the tag-along
rights provided for in this Section 3.5 and has agreed to purchase shares of
Common Stock in accordance with the terms hereof. The tag-along rights provided
by
<PAGE> 18
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this Section 3.5 must be exercised by each Tagging Stockholder within 20 days
following receipt of the notice required by the preceding sentence, by delivery
of a written notice to the Transferring Stockholder indicating such Tagging
Stockholder's desire to exercise its rights and specifying the number of shares
of Common Stock it desires to sell. The Transferring Stockholder shall be
entitled under this Section 3.5 to Transfer to the proposed transferee the
number of shares of Common Stock equal to the excess of (x) the number referred
to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of
Common Stock set forth in the written notices, if any, delivered by the Tagging
Stockholders pursuant to the preceding sentence (up to the maximum number of
shares of Common Stock beneficially owned by such Tagging Stockholder required
to be purchased by the proposed transferee pursuant to the first sentence of
Section 3.5(a)). If the proposed transferee fails to purchase shares of Common
Stock from any Tagging Stockholder that has properly exercised its tag-along
rights, then the Transferring Stockholder shall not be permitted to make the
proposed Transfer, and any such attempted Transfer shall be void and of no
effect, as provided in Section 3.3 hereof.
(c) If any of the Tagging Stockholders exercise their rights under
Section 3.5(a), (i) the first shares of Common Stock to be transferred by such
Tagging Stockholder must be Vested Purchased Shares until such Tagging
Stockholder owns no more Vested Purchased Shares, then Option Shares until such
Tagging Stockholder owns no more Option Shares, then any remaining Purchased
Shares and (ii) the closing of the purchase of the Common Stock with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Transferring Stockholder's Common Stock.
3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7
shall not be applicable to offers and sales of Securities in a Public Offering
or, if such Securities previously have been sold in a Public Offering, pursuant
to Rule 144 under the Securities Act.
3.7 Drag-Along Rights. So long as this Agreement shall remain in
effect, if any of Vestar and its Affiliates receives an offer from a Third Party
to purchase all or any portion of the outstanding shares of Common Stock and
such offer is accepted by Vestar or such Affiliate, as the case may be, then
each other Stockholder hereby agrees that it will, if requested in writing not
less than 15 days' prior to the requested Transfer date by Vestar or such
Affiliate, Transfer a pro rata number of Securities beneficially owned by it to
such Third Party on the terms of the offer so accepted by Vestar or such
Affiliate, as the case may be; including making the same representations,
warranties, covenants, indemnities and agreements that Vestar or such Affiliate,
as the case may be, agrees to make (except that, in the case of representations
and warranties pertaining specifically to Vestar or such Affiliate, as the case
may be, each other Stockholder shall make the comparable representations and
warranties pertaining specifically to itself); provided that all
representations, warranties and indemnities shall be made by Stockholders
severally and not jointly and that the liability of Stockholders (whether
pursuant to a representation, warranty, covenant, indemnification provision or
agreement) shall be evidenced in writings executed by them and the transferee
and shall be borne by each of them on a pro rata basis; and provided further
that the terms of such offer applicable to any Common Stock beneficially owned
by such other Stockholder are no less favorable than the terms of such offer
applicable to the Common Stock beneficially owned by Vestar or such Affiliate,
as the case may be, and their respective Affiliates (including with respect to
the amount and nature of consideration and time of receipt
<PAGE> 19
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thereof); and provided further that the first shares of Common Stock Transferred
by such other Stockholder must be Vested Purchased Shares until such other
Stockholder owns no more Vested Purchased Shares, then the Option Shares until
such other Stockholder owns no more Option Shares, then the portion of any
Options then held by such other Stockholder that are then vested and exercisable
(provided in the case of a Transfer of any such portion of the Options that the
Company shall have made acceptable arrangements with the transferee for the same
per share consideration to be paid to such Stockholder for such portion of the
Option as the transferee pays for the shares of Common Stock to be purchased by
the transferee, reduced by the aggregate option exercise price for the
transferred portion of the Options) until no portion of the Options held by such
Stockholder is vested and exercisable, and then any remaining Purchased Shares.
3.8 Rights of First Refusal. (a) Each Management Investor and their
Permitted Transferees agree that if, prior to a Qualified Public Offering, such
Management Investor or any of its Permitted Transferees receives a bona fide
offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer
Securities") then owned by such Management Investor or such Management
Investor's Permitted Transferees (collectively, the "Management Investor's
Transfer Group") from any Person (the "Offeror") which any member of the
Management Investor's Transfer Group wishes to accept (the "Management Investor
Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be
reduced to writing and shall provide a written notice (the "Transfer Notice") of
such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice
shall also contain an irrevocable offer to sell the Transfer Securities to the
Company, Vestar and Sheridan (in the manner set forth below) at a price equal to
the price contained in, and upon the same terms and conditions as the terms and
conditions contained in, the Transfer Offer and shall be accompanied by a true
and complete copy of the Transfer Offer (which shall identify the Offeror, the
Transfer Securities, the price contained in the Transfer Offer and the other
material terms and conditions of the Transfer Offer). At any time within 30 days
after the date of the receipt by the Company, Vestar and Sheridan of the
Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan
or any of their designated Affiliates shall have the right and option to
purchase all (but not less than all) of the Transfer Securities covered by the
Transfer Offer either (i) for the same consideration and on the same terms and
conditions as the Transfer Offer or (ii) if the Transfer Offer includes any
consideration other than cash, then, at the sole option of the Company, Vestar,
Sheridan, or any of their designated Affiliates, as applicable, at the
equivalent all cash price, determined in good faith by a majority of the members
of the Company's Board of Directors. If the option referred to in the preceding
sentence is exercised, on or prior to the 60th day after the date of receipt by
the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar,
Sheridan or any other designated Affiliates, as applicable, shall execute and
deliver to the Management Investor Offeree a written agreement in the form
included in the Transfer Offer, including representations, warranties, covenants
and indemnities, if the Transfer Offer included such written agreement, and
shall pay the relevant cash consideration, by delivering a certified bank check
or checks in (or, if the Management Investor Offeree so elects at least three
business days prior to the closing date in a writing specifying the Management
Investor Offeree's bank account and other wire Transfer instructions, by wire
transferring) the appropriate amount and shall deliver the relevant non-cash
consideration to the Management Investor Offeree against delivery at the
principal office of Sheridan of certificates or other instruments representing
the Transfer Securities so purchased, appropriately endorsed by the Management
Investor Offeree. If at the end of such 30-day period,
<PAGE> 20
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the Company, Vestar and Sheridan have not delivered written notice of exercise
by them of their right to purchase the Transfer Securities pursuant to this
Section 3.8 or if at the end of such 60-day period, the Company, Vestar and
Sheridan have not tendered the purchase price for such shares in the manner set
forth above, the Management Investor Offeree shall be free for a period of 90
days from the end of such 30- or 60-day period, as applicable, to Transfer not
less than all of the Transfer Securities to the Offeror on the terms and
conditions set forth in the Transfer Notice (including the execution and
delivery of any written agreement in the form included in the Transfer Offer).
Such Offeror shall agree in a writing in form and substance reasonably
satisfactory to the Company to become a party hereto and be bound to the same
extent as the Management Investor Offeree by the provisions hereof. Promptly
after such sale, the Management Investor Offeree shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion and time
of completion of such sale and of the terms thereof as may reasonably be
requested by the Company. If for any reason any Management Investor Offeree does
not Transfer Transfer Securities to the Offeror on the terms and conditions set
forth in the Transfer Notice, or if any Management Investor Offeree wishes to
sell the Transfer Securities on terms other than those set forth in the Transfer
Notice, the provisions of this Section 3.8 shall again be applicable to the
Transfer Securities.
(b) The closing of the purchase of the Transfer Securities by the
Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate,
upon exercise of its right of first refusal pursuant to Section 3.8(a) shall
take place at the principal office of Sheridan on a date specified by the
Company, Sheridan, Vestar or any of their designated Affiliates, as applicable,
no later than the last day of the 60-day period after the giving of the Transfer
Notice.
(c) Notwithstanding anything in this Section 3.8 to the contrary,
(i) neither Vestar nor any of its designated Affiliates may exercise a right of
first refusal under this Section 3.8 unless Vestar has received a written notice
from the Company indicating the Company's intention not to exercise such right
of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its
designated Affiliates may exercise a right of first refusal under this Section
3.8 unless Sheridan has received a No ROFR Notice from Vestar.
3.9 Participation Right. (a) Except as otherwise set forth in
Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or
any of its Affiliates:
(i) additional shares of Common Stock or Common Stock Equivalents or
capital stock of the Company other than Common Stock and Common Stock
Equivalents ("Other Capital Stock"); or
(ii) any warrants, rights, calls, options or other securities
exchangeable for or exercisable or convertible into Other Capital Stock or
any other security other than Common Stock, Common Stock Equivalents or
Other Capital Stock entitled to participate in the Company's profits
(collectively, "Other Capital Stock Equivalents");
unless, prior to such Issuance, the Company notifies each Management Investor in
writing of the proposed Issuance and grants to such notified party or, at the
election of such notified party, one of its Affiliates the right (the "Right")
to subscribe for and purchase such additional shares of Common Stock or Other
Capital Stock or such additional shares or units of
<PAGE> 21
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Common Stock Equivalents or Other Capital Stock Equivalents (collectively,
"Equity Interests") so issued at the same price and upon the same terms and
conditions (including, in the event such Equity Interests are issued as a unit
together with other securities, the purchase of such other securities) as issued
in the Issuance such that:
(A) in the case of an Issuance in which shares of Common Stock or
Common Stock Equivalents are to be issued, immediately after giving effect
to the Issuance and exercise of the Right (including, for purposes of this
calculation, the issuance of shares of Common Stock upon conversion,
exchange or exercise of any Common Stock Equivalent issued in the Issuance
or subject to the Right), the shares of Common Stock beneficially owned by
the notified party and its Affiliates on a fully diluted basis (rounded to
the nearest whole share) shall represent the same percentage of the
aggregate number of shares of Common Stock outstanding on a fully diluted
basis as was beneficially owned by such notified party and its Affiliates
and Vestar and its Affiliates, respectively, immediately prior to the
Issuance; provided, that for purposes of the calculations required by this
Section 3.9(a)(A) notified parties and their Affiliates shall not be
deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance; and
(B) in the case of an Issuance in which shares of Other Capital
Stock or Other Capital Stock Equivalents are to be issued, the notified
party and its Affiliates shall have the Right to acquire a percentage of
the Other Capital Stock or Other Capital Stock Equivalents to be issued in
the Issuance equal to the percentage of shares of Common Stock on a fully
diluted basis that was beneficially owned by such notified party and its
Affiliates and Vestar and its Affiliates, respectively, immediately prior
to the Issuance; provided, that for purposes of the calculations required
by this Section 3.9(a)(B) notified parties and their Affiliates shall not
be deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance.
(b) The Right may be exercised by the notified party at any time by
written notice to the Company received by the Company within 20 days after the
date on which such notified party receives notice from the Company of the
proposed Issuance, and the closing of the purchase and sale pursuant to the
exercise of the Right shall occur at least 15 days (but not later than 180 days)
after the Company receives notice of the exercise of the Right and prior to or
concurrently with the closing of the Issuance. Notwithstanding the foregoing
provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of
Equity Interests pro rata to all holders of Common Stock and Other Capital
Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common
Stock Equivalent or any Other Capital Stock Equivalent outstanding on the
Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management
Investor or any other employee of the Company pursuant to a management stock
subscription agreement or stock option or other employee benefit plan of the
Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board
of Directors of the Company or a Subsidiary of the Company designated by Vestar
and its Permitted Transferees who is not a director, officer, general partner or
employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as
such to the
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Board of Directors of the Company or a Subsidiary of the Company, (v) any
Issuance pursuant to a bona fide underwritten public offering pursuant to an
effective registration statement under the Securities Act or (vi) any Issuance
of Mezzanine Securities.
3.10 Partial Transfers Following a Qualified Public Offering. Each
Senior Management Investor may, during the one year period commencing on the
second anniversary of the first Qualified Public Offering and during each one
year period commencing on each succeeding anniversary of such Qualified Public
Offering thereafter (each such anniversary being referred to as a "Measurement
Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option
Shares beneficially owned by such Senior Management Investor on the applicable
Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this
provision shall not permit a Senior Management Investor who has already
Transferred (pursuant to any provision of this Agreement which permits Transfers
by Senior Management Investors) the cumulative number of shares of Common Stock
he or she otherwise would be entitled to Transfer pursuant to this Section 3.10
to Transfer any additional shares of Common Stock.
3.11 Partial Transfers to Cover Option-Related Tax Payments.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by the Management Investor with Good Reason, and
thereafter such Management Investor exercises Options which would otherwise
expire unless so exercised, such Management Investor may Transfer Securities;
provided, that the aggregate purchase price for the Securities being Transferred
shall not exceed the total amount of taxes which such Management Investor's tax
consultant has reasonably advised will be due and owing in respect of such tax
year by such Management Investor as a result of such Management Investor
exercising such Options; and provided, further, that such Transfer shall be
subject to the right of first refusal provisions of Section 3.8.
3.12 Transfers to Other Management Investors.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then at
any time after the conclusion of the Second Call Period, such Management
Investor may Transfer all or any portion of the Securities beneficially owned by
him to one or more of the other Management Investors; provided, however, that if
the proposed purchase price for such Securities which is offered to the other
Management Investors is less than the relevant purchase price under Section
3.13(c), such proposed Transfer hereunder by such Management Investor shall be
subject to the right of first refusal provisions of Section 3.8.
3.13 Call Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated by the applicable employer for Cause, then within 180 days of the
employment termination date, and subject to Section 3.13(e), the Company,
Vestar, Sheridan or any of their designated Affiliates shall have the option to
purchase all or any portion of the Purchased Shares and Option Shares held by
such
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Management Investor and such Management Investor's Permitted Transferees by
providing written notice of the relevant election (including the number of
Securities to be purchased) to the applicable Management Investor and Permitted
Transferees (a "Call Notice"). The purchase price per share for such Securities
will be the lower of Cost and Fair Market Value on the date of termination of
employment.
(b) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated due to the death
or Disability of such Management Investor, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
such Securities will be the greater of Cost and Fair Market Value on the date of
termination of employment.
(c) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then
within the later of (1) 180 days of the employment termination date (and, with
respect to any Option Shares, within 180 days after the date of the last
exercise of any Options, if later) or (2) ten days after the applicable
Management Investor has rescinded his election to sell all or a portion of his
Purchased Shares which were to be paid for with a Junior Subordinated Note in
connection with the put right set forth in Section 3.14, and subject to Section
3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates
shall have the option to purchase all or any portion of the Purchased Shares and
Option Shares held by such Management Investor and such Management Investor's
Permitted Transferees by providing a Call Notice to the applicable Management
Investor and Permitted Transferees. The purchase price per share for (A) the
Applicable Percentage of the Purchased Shares and for all Option Shares will be
the greater of (x) Cost or (y) Fair Market Value on the date of termination of
employment and (B) the remaining portion of such Purchased Shares, if any, will
be Cost.
(d) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is voluntarily terminated by
such Management Investor without Good Reason, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
the Applicable Percentage of the Purchased Shares and for all Option Shares will
be Fair Market Value on the date of termination of employment and the purchase
price for the remaining portion of the Purchased Shares, if any, will be the
lower of (x) Cost or (y) Fair Market Value on the date of termination of
employment; provided that if such voluntary termination without Good Reason
occurs prior to the second anniversary of the Closing
<PAGE> 24
21
Date, the Purchase Price per share for all Option Shares will be the lower of
(x) Cost or (y) Fair Market Value on the date of termination of employment.
(e) Notwithstanding anything in this Section 3.13 to the contrary
(i) neither Vestar nor any of its designated Affiliates may exercise a call
right under this Section 3.13 unless Vestar has received written notice from the
Company indicating the Company's intention not to exercise such call right (a
"No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates
may exercise a call right under this Section 3.13 unless Sheridan has received a
No Call Notice from Vestar.
(f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair
Market Value on the date of the Management Investor's termination of employment
and none of the Company, Vestar or Sheridan exercises the call right with
respect to the Purchased Shares and Option Shares which it could have purchased
at Cost (the "Cost Securities") during the 180 day period commencing on such
date of termination (the "Initial Call Period"), then the Company, Vestar or
Sheridan (subject once again to the provisions of Section 3.13(e) with respect
to the Second Call Period regardless of whether No Call Notices were issued in
the Initial Call Period) will have an additional right to call the Cost
Securities during the 90-day period commencing on the eighteen-month anniversary
of the Management Investor's termination of employment (the "Second Call
Period") by providing a Call Notice to the applicable Management Investor. The
purchase price per share for such Securities pursuant to Section 3.13(c)(A) will
be the greater of (x) Fair Market Value on the date of termination of employment
and (y) Fair Market Value on the first day of the Second Call Period and the
purchase price for such Securities pursuant to Section 3.13(c)(B) will be the
lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call
Period.
(g) The completion of the purchases pursuant to Sections 3.13(a),
(b), (c), (d) and (f) shall take place at the principal office of Sheridan on or
prior to the thirtieth (30th) day after the giving of the applicable Call
Notice. The repurchase price for the Securities shall be paid by delivery to the
appropriate Management Investor or Permitted Transferee of a certified bank
check or checks in the appropriate amount payable to the order of such
Management Investor or Permitted Transferee unless Sheridan is the party
exercising such call right and a Financing Default exists or, after giving
effect to such payment would exist, which prohibits such cash payment, in which
case the portion of the cash payment so prohibited shall be made, to the extent
permitted by any loan agreement, indenture or other agreement to which Sheridan
is a party, by Sheridan's delivery of a junior subordinated promissory note
(which shall be subordinated and subject in right of payment to the prior
payment of all indebtedness of Sheridan including, without limitation, any debt
outstanding under any credit agreement and any modifications, renewals,
extensions, replacements and refunding of all such indebtedness) of Sheridan (a
"Junior Subordinated Note") in a principal amount equal to the amount of the
purchase price which cannot be paid in cash, payable in five equal annual
installments commencing on the first anniversary of the issuance thereof and
bearing interest payable annually in arrears at the publicly announced prime
rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all
or any of the purchase price for any of the Securities with a Junior
Subordinated Note, and then resells such Securities for cash, the portion of the
accrued but unpaid interest and, to the extent of any excess, the outstanding
principal amount of the Junior Subordinated Note that is equal to the amount of
such cash proceeds shall become immediately due and payable, unless and to the
extent
<PAGE> 25
22
that payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, the payment
of all or any portion of the amounts outstanding under such Junior Subordinated
Note can be repaid by Sheridan without giving rise to a Financing Default (a
"Permitted Payment"), Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment (accrued interest first and then principal) in cash to the applicable
Management Investor or Permitted Transferee by delivery of a certified bank
check to the order of such Management Investor or Permitted Transferee. If
Sheridan cannot pay the purchase price for any Securities subject to a Call
Notice in cash or a Junior Subordinated Note due to any circumstance described
in this subparagraph 9(g), Sheridan shall not be permitted to exercise the
applicable call right.
3.14 Put Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated due to the death or Disability of such Management Investor, then
within 180 days of the employment termination date such Management Investor and
the members of the Family Group of such Management Investor shall have the
option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one
occasion from such Management Investor and the members of the Family Group of
such Management Investor, all or any portion of the Purchased Shares held by
such Management Investor and the members of the Family Group of such Management
Investor by providing written notice of his or their election (including the
number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase
price per share for such Securities will be Fair Market Value on the date of
termination of employment.
(b) If, at any time prior to the Lapse Date, a Senior Management
Investor's employment with the Company and its Subsidiaries is terminated by the
applicable employer without Cause or by such Senior Management Investor with
Good Reason, then within 180 days of the employment termination date such Senior
Management Investor shall have the option to sell to Sheridan, and Sheridan
shall be obligated to purchase, on one occasion from such Senior Management
Investor a number of Purchased Shares held by such Senior Management Investor
the aggregate purchase price for which under this Section 3.14(b) is not in
excess of the aggregate purchase price paid by such Senior Management Investor
on the Closing Date for all Securities purchased by such Senior Management
Investor on the Closing Date. Such Senior Management Investor shall exercise
such put right by providing a Put Notice to Sheridan. The purchase price per
share for (A) the Applicable Percentage of such Purchased Shares will be Fair
Market Value on the date of termination of employment and (B) the remaining
portion of such Purchased Shares, if any, will be the lower of Cost and Fair
Market Value on the date of termination of employment.
(c) The completion of the purchase pursuant to Section 3.14 (a)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice. The purchase price for the Purchased
Shares included in the Put Notice shall be paid by delivery to the appropriate
Management Investor or the members of his Family Group, as applicable, of a
certified bank check or checks in the appropriate amount payable to the order of
such Management Investor or the members of his Family Group, as applicable,
unless a Financing Default exists or, after giving effect to such payment would
exist, which prohibits such cash
<PAGE> 26
23
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the purchase price with a Junior Subordinated Note, Sheridan
shall give the notice of the principal amount of such note at least 15 days
prior to such purchase, and the relevant Management Investor shall have ten days
thereafter to rescind his election to sell all or a portion of his Purchased
Shares to be paid for with such note. If Sheridan pays all or any portion of the
purchase price for any Purchased Shares with a Junior Subordinated Note, and
then resells such Purchased Shares for cash, the portion of the accrued but
unpaid interest and, to the extent of any excess, the outstanding principal
amount of the Junior Subordinated Note that is equal to the amount of such cash
proceeds shall become immediately due and payable, unless and to the extent that
payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted
Payment can be made, Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment in cash to the applicable Management Investor or the members of his
Family Group, as applicable, by delivery of a certified bank check to the order
of such Management Investor or the members of his Family Group, as applicable.
(d) The completion of the purchase pursuant to Sections 3.14 (b)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice, at which time at least fifty percent of
the purchase price shall be paid. If Sheridan elects to pay less than all of the
purchase price initially, the remaining portion of the purchase price shall be
paid in one payment on or prior to the first anniversary of the giving of the
Put Notice. The purchase price for the Purchased Shares included in the Put
Notice shall be paid by delivery to the appropriate Senior Management Investor
of a certified bank check or checks in the appropriate amount payable to the
order of such Senior Management Investor unless a Financing Default exists or,
after giving effect to such payment would exist, which prohibits such cash
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the initial payment of the purchase price with a Junior
Subordinated Note, Sheridan shall give the Senior Management Investor notice of
the principal amount of such note at least 15 days prior to such purchase, and
the relevant Senior Management Investor shall have ten days thereafter to
rescind his election to sell all or a portion of his Purchased Shares to be paid
for with such note. If Sheridan pays all or any portion of the purchase price
for any Purchased Shares with a Junior Subordinated Note, and then resells such
Purchased Shares for cash, the portion of the accrued but unpaid interest and,
to the extent of any excess, the outstanding principal amount of the Junior
Subordinated Note that is equal to the
<PAGE> 27
24
amount of such cash proceeds shall become immediately due and payable, unless
and to the extent that payment of such accrued interest or outstanding principal
under the Junior Subordinated Note would constitute or result in a Financing
Default. If at any time after the issuance by Sheridan of a Junior Subordinated
Note, a Permitted Payment can be made, Sheridan shall, as promptly as
practicable but not later than thirty days after such payment becomes
permissible, pay the Permitted Payment (accrued interest first and then
principal) in cash to the applicable Senior Management Investor by delivery of a
certified bank check to the order of such Senior Management Investor.
SECTION 4. REGISTRATION RIGHTS
4.1 Demand Registration.
(a) Common Stock Request. Upon the written request (a "Request") of
Vestar or its designated Permitted Transferees that the Company effect the
registration under the Securities Act of all or part of the shares of Common
Stock owned or to be acquired upon conversion, exercise or exchange of Common
Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting
Stockholder"), the Company will use its best efforts to effect the registration
under the Securities Act of such shares.
(b) Registration Statement Form. Registrations under this Section
4.1 shall be on such appropriate registration form of the SEC as shall (i) be
selected by the Company and (ii) permit the disposition of the Common Stock
being registered in accordance with the intended method or methods of
disposition specified in the request for such registration. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the underwriters, the Requesting Stockholder and the
Company, is required to be included.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, or
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
Governmental Authority for any reason not attributable to the Requesting
Stockholder or any of its Affiliates and has not thereafter become effective.
(d) Limitations on Registration on Request. Notwithstanding anything
in this Section 4.1 to the contrary, in no event will (i) the Company be
required to effect more than one registration pursuant to Section 4.1(a) within
any 180 day period or (ii) the Requesting Stockholder be entitled to more than
five registrations in the aggregate pursuant to Section 4.1(a); unless in the
case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of
the costs and expenses of each such additional registration (unless either (x) a
registration so requested is not deemed to have been effected pursuant to
Section 4.1(c) for a reason not attributable to the Requesting Stockholder or
any of its Affiliates or (y) the number of shares of Common Stock sought to be
included by such Requesting Stockholder in such registration is reduced by more
than 25% pursuant to the provisions of Section 4.2(b)).
<PAGE> 28
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4.2 Incidental Registration.
(a) Right to Include Common Stock and Common Stock Equivalents. If
the Company at any time proposes to register any shares of Common Stock (or
Common Stock Equivalents, including any registration of Common Stock Equivalents
pursuant to the exercise of rights under Section 4.2(b)) under the Securities
Act (except registrations on such form(s) solely for registration of Common
Stock or Common Stock Equivalents in connection with any employee benefit plan
or dividend reinvestment plan or a merger or consolidation), including
registrations pursuant to Section 4.1(a), whether or not for sale for its own
account, it will each such time as soon as practicable give written notice of
its intention to do so to all the Stockholders. Upon the written request (which
request shall specify the total number of shares of Common Stock or Common Stock
Equivalents intended to be disposed of by such Stockholder) of any Stockholder
made within 30 days after the receipt of any such notice (15 days if the Company
gives telephonic notice with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such shorter
period of time is required because of a planned filing date), the Company will
use all reasonable efforts to effect the registration under the Securities Act
of all Common Stock held or to be acquired upon conversion, exercise or exchange
of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be
registered by the Company, Common Stock Equivalents) by the Stockholders which
the Company has been so requested to register for sale in the manner initially
proposed by the Company; provided that the Company shall not be obliged to
register any Common Stock Equivalents which are not of the same class, series
and form as the Common Stock Equivalents proposed to be registered by the
Company. If the Company thereafter determines for any reason not to register or
to delay registration of the Common Stock or Common Stock Equivalents (provided,
however, that in the case of any registration pursuant to Section 4.1(a), such
determination shall not violate any of the Company's obligations under Section
4.1 or any other provision of this Agreement), the Company may, at its election,
give written notice of such determination to the Stockholders and (A) in the
case of a determination not to register, shall be relieved of the obligation to
register such Common Stock or Common Stock Equivalents in connection with such
registration (without prejudice, however, to any right the Requesting
Stockholder may have to request that such registration be effected as a
registration under Section 4.1(a)) and (B) in the case of a determination to
delay registering, shall be permitted to delay registering any Common Stock or
Common Stock Equivalents of a Stockholder for the same period as the delay in
registration of such other securities. No registration effected under this
Section 4.2(a) shall relieve the Company of any obligation to effect a
registration upon a Common Stock Request under Section 4.1(a).
(b) Priority in Incidental Registration. In a registration pursuant
to this Section 4.2, if the managing underwriter of such underwritten offering
shall inform the Company and the relevant Stockholders by letter of its belief
that the number of shares of Common Stock or Common Stock Equivalents, as the
case may be, to be included in such registration would adversely affect its
ability to effect such offering, then the Company will be required to include in
such registration only that number of shares of Common Stock or Common Stock
Equivalents which it is so advised should be included in such offering. Shares
of Common Stock or Common Stock Equivalents proposed by the Company to be
registered for issuance by the Company shall have the first priority in a
registration pursuant to Section 4.2(a) and all other shares of Common
<PAGE> 29
26
Stock or Common Stock Equivalents to be registered (whether or not requested to
be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given
second priority without preference among the relevant holders. If less than all
of the Stockholder's shares of Common Stock or Common Stock Equivalents are to
be registered, each such Stockholder's shares of Common Stock or Common Stock
Equivalents shall be included in the registration pro rata based on the total
number of shares of Common Stock or Common Stock Equivalents sought to be
registered by each Stockholder (as opposed to the Company).
(c) Custody Agreement and Power of Attorney. Upon delivering a
request under this Section 4.2, Management Investors and their Permitted
Transferees will, if requested by the Company, execute and deliver a custody
agreement and power of attorney in form and substance reasonably satisfactory to
the Company and one of the director designees referred to in Section 2.1(a)(i)
with respect to such Stockholder's shares of Common Stock or Common Stock
Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement
and Power of Attorney"). The Custody Agreement and Power of Attorney will
provide, among other things, that the Stockholder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein (who shall be
reasonably satisfactory to one of the director designees referred to in Section
2.1(a)(i)) a certificate or certificates representing such shares of Common
Stock or Common Stock Equivalents (duly endorsed in blank by the registered
owner or owners thereof or accompanied by duly executed stock powers in blank)
and irrevocably appoint said custodian and attorney-in-fact as such
Stockholder's agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on such Stockholder's behalf
with respect to the matters specified therein. Such Stockholder also agrees to
execute such other agreements as the Company may reasonably request to further
evidence the provisions of this Section 4.2.
4.3 Registration Procedures. In connection with the Company's
obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all
reasonable efforts to effect such registration and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use all reasonable efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (i) 180 days following the date on which such
registration statement is declared effective or (ii) the termination of the
offering being made thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
shares of Common Stock or Common Stock Equivalents, as the case may be, covered
by such registration statement until such Common Stock or Common Stock
Equivalents have been sold or such lesser period of time as the Company, any
seller of such Common Stock or Common Stock Equivalents or any underwriter is
required under the Securities Act to deliver a prospectus in accordance with the
intended methods of disposition by the sellers
<PAGE> 30
27
of such Common Stock or Common Stock Equivalents set forth in such registration
statement or supplement to such prospectus;
(c) furnish to each Stockholder which owns shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by such registration
statement (the "Selling Stockholders") and the managing underwriter, if any, at
least one executed original of the registration statement and such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, as may reasonably be requested by
such Selling Stockholder;
(d) use all reasonable efforts (i) to register or qualify all shares
of Common Stock or Common Stock Equivalents covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions where an
exemption is not available as the Selling Stockholders shall reasonably request,
(ii) to keep such registration or qualification in effect for so long as such
registration statement remains in effect and (iii) to take any other action
which may be reasonably necessary or advisable to enable the Selling
Stockholders to consummate the disposition in such jurisdictions of such Common
Stock or Common Stock Equivalents; provided that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, subject itself to taxation in any such jurisdiction or take
any action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Stockholders and the managing underwriter, if
any, promptly, and confirm such advice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to a registration statement or related prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the registered
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or information
becoming known which requires the making of any changes in a registration
statement or related prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (vi) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v)
above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document
<PAGE> 31
28
so that, as thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(h) use its best efforts to furnish to the Selling Stockholders a
signed counterpart, addressed to the Selling Stockholders and the underwriters,
if any, of (A) an opinion of counsel for the Company, and (B) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of the accountant's letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities (and dated the dates such opinions and comfort
letters are customarily dated) and, in the case of the accountant's letter, such
other financial matters, and in the case of the legal opinion, such other legal
matters, as the Selling Stockholders or the underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Selling Stockholders
an earnings statement satisfying the provisions of Section 10(a)(i) of the
Securities Act and Rule 158 promulgated thereunder, no later than 90 days after
the end of any 12-month period beginning after the effective date of a
registration statement pursuant to which shares of Common Stock or Common Stock
Equivalents are sold, which statement shall cover such 12-month period;
(j) cooperate with the Selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock or Common Stock Equivalents to
be sold; and enable such shares of Common Stock or Common Stock Equivalents to
be in such denominations and registered in such names as the Selling
Stockholders or the managing underwriters, if any, may request at least two
Business Days prior to any sale of shares of Common Stock or Common Stock
Equivalents to the underwriters;
(k) use its best efforts to cause the shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by the applicable
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Selling
Stockholder(s) or the underwriters, if any, to consummate the disposition of
such shares of Common Stock or Common Stock Equivalents;
(l) cause all shares or units of Common Stock or Common Stock
Equivalents, as the case may be, covered by the registration statement to be
listed on each securities exchange, if any, on which securities of such class,
series and form issued by the Company, if any, are then listed if requested by
the managing underwriters, if any, or the holders of a majority of the shares or
units of Common Stock or Common Stock Equivalents covered by the registration
statement and entitled hereunder to be so listed;
<PAGE> 32
29
(m) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
(n) as soon as practicable prior to the filing of any document which
is to be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement) provide copies
of such document to counsel to the Selling Stockholders and to the managing
underwriters, if any, and make the Company's representatives available for
discussion of such document and consider in good faith making such changes in
such document prior to the filing thereof as counsel for such Selling
Stockholders or underwriters may reasonably request.
The Company may require each Selling Stockholder to furnish to the
Company such information regarding such Selling Stockholder and the distribution
of such securities as the Company may from time to time reasonably request in
writing in order to comply with the Securities Act.
The Selling Stockholders agree that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue
disposition pursuant to such registration statement of any shares of Common
Stock or Common Stock Equivalents, as the case may be, covered by such
registration statement or prospectus until their receipt of the copies of the
supplemented or amended prospectus relating to such registration statement or
prospectus or until they are advised in writing by the Company that the use of
the applicable prospectus may be resumed (and the period of such discontinuance
shall be excluded from the calculation of the period specified in clause (x) of
Section 4.3(a)) and, if so directed by the Company, will deliver to the Company
(at the Company's expense, except as otherwise provided in Section 4.1(d)) all
copies, other than permanent file copies then in their possession, of the
prospectus covering such securities in effect at the time of receipt of such
notice. The Selling Stockholders agree to furnish the Company a signed
counterpart, addressed to the Company and the underwriters, if any, of an
opinion of counsel for the Selling Stockholders covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of selling stockholder's counsel
delivered to the underwriters in underwritten public offerings of securities
(and dated the dates such opinions are customarily dated) and such other legal
matters as the Company or the underwriters may reasonably request.
4.4 Underwritten Offerings.
(a) Demand Underwritten Offerings. In any underwritten offering
pursuant to a registration requested under Section 4.1, the Company will use its
best efforts to enter into an underwriting agreement for such offering with the
underwriters selected by the Requesting Stockholder, such agreement and
underwriters to be reasonably satisfactory in form and substance to the Company,
the Requesting Stockholder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type. The Selling Stockholders who
hold shares of Common Stock to be
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30
distributed by such underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
them and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to their
obligations. The Company may require that any or all of the representations and
warranties by, and the other agreements on the part of the Selling Stockholders
to and for the benefit of such underwriters shall also be made to and for the
benefit of the Company with due regard to the amount of Securities being sold by
such Selling Stockholder and the nature of such representations, warranties and
agreements and the underwriting.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any shares of its Common Stock or Common Stock Equivalents
under the Securities Act as contemplated by Section 4.2 and such Securities are
to be distributed by or through one or more underwriters, the Company and the
Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents
to be distributed by such underwriters in accordance with Section 4.2 hereof
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of them and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to their obligations. The Company may, at its option, require that any
or all of the representations and warranties by, and the other agreements on the
part of the Selling Stockholders to and for the benefit of such underwriters
shall also be made to and for the benefit of the Company with due regard to the
amount of Securities being sold by such Selling Stockholder and the nature of
such representations, warranties and agreements and the underwriting.
4.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Stockholders, the
underwriters and their respective counsels and accountants a reasonable
opportunity (but such Persons shall not have the obligation) to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the SEC, and, to the extent practicable, each amendment thereof or
supplement thereto, and, subject to the execution and delivery of a customary
confidentiality agreement, will give each of them such access to its books and
records (to the extent customarily given to the underwriters of the Company's
securities), and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary to conduct a reasonable investigation
within the meaning of the Securities Act.
4.6 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause shares of Common Stock and Common Stock Equivalents to be
registered under the Securities Act are subject to each of the following
limitations, conditions and qualifications:
<PAGE> 34
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(a) The Company shall be entitled to postpone for a reasonable
period of time the filing or effectiveness of, or suspend the rights of Selling
Stockholders to make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (i) 15 days after the cessation of the circumstances described in
clauses (A) and (B) below or (ii) 120 days after the date of the determination
of the Board of Directors of the Company referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (i) of Section 4.3(a)) if the Board of Directors of
the Company determines in good faith that (A) there is a material undisclosed
development in the business or affairs of the Company (including any pending or
proposed financing, recapitalization, acquisition or disposition), the
disclosure of which at such time could be adverse to the Company's interests or
(B) the Company has filed a registration statement with the SEC, such
registration statement has not yet been declared effective, the Company is using
its reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such registration would be adversely affected. If the Company shall so delay the
filing of a registration statement, it shall, as promptly as possible, notify
the Selling Stockholders of such determination, and the Selling Stockholders
shall have the right (x) in the case of a postponement of the filing or
effectiveness of a registration statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (y) in the case of a suspension of the right
to make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company shall not be required hereby to include shares of
Common Stock or Common Stock Equivalents in a registration statement if, in the
written opinion (to be issued to, and relied upon by, the Stockholders seeking
inclusion) of outside counsel to the Company of recognized standing in
securities law matters, the beneficial owners of such Common Stock or Common
Stock Equivalents seeking registration would be free to sell all of such shares
of Common Stock or Common Stock Equivalents within the current calendar quarter
without registration under Rule 144 under the Securities Act.
(c) The Company's obligations shall be subject to the obligations of
the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish
all information and materials and to take any and all actions as may be required
under applicable federal and state securities laws and regulations to permit the
Company to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such registration statement.
(d) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
4.7 Expenses. The Company and Sheridan jointly and severally agree
to pay all reasonable out-of-pocket costs and expenses incurred in connection
with each registration of Common Stock or Common Stock Equivalents pursuant to
this Agreement, including, without limitation, the reasonable fees and
disbursements of a single firm of outside counsel retained by Selling
Stockholders which beneficially own a majority of the total number of shares or
units of Common Stock or Common Stock Equivalents being registered by Selling
Stockholders (the
<PAGE> 35
32
"Majority Selling Stockholders"), and any and all filing fees payable to the
SEC, fees with respect to filings required to be made with stock exchanges, the
NASDAQ and the NASD, fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of a single firm of
outside counsel for the underwriters or the Majority Selling Stockholders in
connection with blue sky qualifications of the Common Stock or Common Stock
Equivalents being registered and determination of its eligibility for investment
under the laws of such jurisdictions as the Selling Stockholders may designate),
printing expenses, fees and disbursements of counsel and accountants of the
Company, including costs associated with comfort letters, and fees and expenses
of other Persons retained by the Company, but excluding underwriters' expenses
(including discounts, commissions or fees of underwriters and expenses included
therein, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the securities being registered or
legal expenses of any Person other than the Company and the Selling
Stockholders) but including the fees and expenses of any qualified independent
underwriter required to participate in such registration pursuant to applicable
law or the requirements of the NASD. The Company and its Subsidiaries shall, in
any event in all cases, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), and the expense of securities law liability
insurance and rating agency fees, if any.
4.8 Indemnification.
(a) Indemnification by the Company. In connection with any
registration pursuant hereto in which shares of Common Stock or Common Stock
Equivalents are to be disposed of, the Company shall indemnify and hold
harmless, to the full extent permitted by law, each holder of such Common Stock
or Common Stock Equivalents to be disposed of and, when applicable, its
officers, directors, agents and employees and each Person who controls such
holder (within the meaning of the Securities Act or the Exchange Act) against
all losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, including, without
limitation, any loss, claim, damage, liability or expense resulting from the
failure to keep a prospectus current, except insofar as the same (i) are caused
by or contained in any information relating to such holder furnished in writing
to the Company by such holder expressly for use therein or (ii) are caused by
such holder's failure to deliver a copy of the current prospectus simultaneously
with or prior to such sale after the Company has furnished such holder with a
sufficient number of copies of such prospectus correcting such material
misstatement or omission or (iii) arise in respect of any offers to sell or
sales made during any period when a holder is required to discontinue sales
under Section 4.3(e) (and after such holder has received in writing the notice
contemplated by Section 4.3(e)). The Company shall also indemnify underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each person
who controls such Persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the holders of
such Common Stock or Common Stock Equivalents to be disposed of, and shall enter
into an indemnification agreement with such Persons containing such terms, if
requested.
<PAGE> 36
33
(b) Indemnification by Stockholders. In connection with each
registration statement effected pursuant hereto in which shares of Common Stock
or Common Stock Equivalents are to be disposed of, each Selling Stockholder
shall, severally but not jointly, indemnify and hold harmless, to the full
extent permitted by law, the Company, each other Selling Stockholder and their
respective directors, officers, agents and employees and each Person who
controls the Company and each other Selling Stockholder (within the meaning of
the Securities Act or the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in such registration
statement or prospectus or preliminary prospectus or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue statement or omission relates to such Selling Stockholder and is
contained in any information furnished in writing by such Selling Stockholder or
any of its Affiliates to the Company expressly for inclusion in such
registration statement or prospectus. In no event shall the liability of any
Selling Stockholder hereunder be greater in amount than the dollar amount of the
proceeds actually received by such Selling Stockholder upon the sale of the
securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder shall give prompt notice to the indemnifying party of
any claim with respect to which it shall seek indemnification and shall permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the indemnifying party shall have agreed to pay such fees or expenses, or (ii)
the indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (iii) in the opinion of
outside counsel to such Person there may be one or more legal defenses available
to such Person which are different from or in addition to those available to the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). If such defense is not assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent (but such consent shall not be unreasonably withheld). No
indemnified party shall be required to consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a written
release in form and substance reasonably satisfactory to such indemnified party
from all liability in respect of such claim or litigation. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim shall
not be obligated to pay the fees and expenses of more than one firm of counsel
(and, if necessary, local counsel) for all parties indemnified by such
indemnifying party with respect to such claim, unless in the written opinion of
outside counsel to an indemnified party a conflict of interest as to the subject
matter exists between such indemnified party and another indemnified party with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel for such indemnified party.
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34
(d) Contribution. If for any reason the indemnification provided for
herein is unavailable to an indemnified party or is insufficient to hold it
harmless as contemplated hereby, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of any Selling Stockholder for
such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received by such Selling Stockholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
4.9 Participation in Underwritten Registrations. No Stockholder or
Permitted Transferee may participate in any underwritten registration hereunder
unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of
Common Stock or Common Stock Equivalents on the basis provided in and in
compliance with any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7
under the Exchange Act, and (b) completes and executes all questionnaires,
appropriate and limited powers of attorney, escrow agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements; provided that all such documents shall be
consistent with the provisions hereof.
4.10 Rule 144. The Company hereby covenants that after it has filed
(and such registration statement has become effective) a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of
Common Stock, the Company will file in a timely manner all reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any Stockholder, make publicly
available other information so long as necessary to permit sales by such
Stockholder under Rule 144 under the Securities Act) and will take such further
action as any Stockholder may reasonably request to the extent required from
time to time to enable such Stockholder to sell shares of Common Stock under
Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management
Investor shall Transfer shares of Common Stock under Rule 144 unless expressly
permitted to do so by the terms of this Agreement.
4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any
of its shares of Common Stock or Common Stock Equivalents is included in a
registration statement filed by the Company in connection with an underwritten
public offering it shall not effect any public sale or distribution of shares of
Common Stock or Common Stock Equivalents during the 30 days prior to or the 180
day period beginning on the effective date of such registration statement
(except as part of such registration) if and to the extent reasonably requested
in writing (with reasonable prior notice) by the managing underwriter of the
underwritten public offering.
(b) The Company agrees not to effect any primary public sale or
distribution of any Common Stock or Common Stock Equivalents, as the case may
be, during the 10 days prior to and the 180 day period beginning on the
effective date of any registration statement in which
<PAGE> 38
35
any Stockholder is participating in connection with an underwritten public
offering of Common Stock or Common Stock Equivalents, as the case may be, if and
to the extent reasonably requested in writing (with reasonable prior notice) by
the managing underwriter of the underwritten public offering.
4.12 Mezzanine Securities. Notwithstanding anything to the contrary
herein, the Company may grant registration rights to holders of Mezzanine
Securities which are more, as or less favorable to such holders than the
registration rights of the parties hereto. To the extent that Mezzanine
Securities consist of Common Stock or Common Stock Equivalents, holders of
Mezzanine Securities may be given the right by the Company to participate in
registrations as if such holders were Stockholders, and the Company shall not be
obliged hereunder to comply with any provision of this Section 4 in respect of a
registration of Mezzanine Securities.
SECTION 5. MISCELLANEOUS
5.1 Additional Securities Subject to Agreement. Each Stockholder
agrees that any other Securities which it shall hereafter acquire by means of a
stock split, stock dividend, distribution, exercise of stock options, or
otherwise (other than Mezzanine Securities or pursuant to a Public Offering or
Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the
same extent as if held on the date hereof.
5.2 Termination. Except as otherwise provided herein, this Agreement
shall terminate, and thereby become null and void, as to any particular
Securities, on the date on which they are sold in a Public Offering or are sold
pursuant to Rule 144 under the Securities Act (unless such Securities are
reacquired by a Stockholder).
5.3 Injunctive Relief. The Stockholders and their Permitted
Transferees acknowledge and agree that a violation of any of the terms of this
Agreement will cause the Stockholders and their Permitted Transferees
irreparable injury for which adequate remedy at law is not available.
Accordingly, it is agreed that each Stockholder and Permitted Transferee shall
be entitled to an injunction, restraining order or other equitable relief to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction in the
United States or any state thereof, in addition to any other remedy to which
they may be entitled at law or equity.
5.4 Other Stockholders' Agreements. None of the Stockholders shall
enter into any stockholder agreement or other arrangement of any kind with any
Person with respect to any Securities which is inconsistent with the provisions
of this Agreement or which may impair its ability to comply with this Agreement.
5.5 Amendments. This Agreement may be amended only by a written
instrument signed (a) by Vestar, so long as it or its Affiliates own Securities,
and (b) by Stockholders other than Vestar and its Affiliates which own on a
fully diluted basis Securities representing at least a majority of the voting
power represented by all Securities outstanding on a fully diluted basis and
owned by all Stockholders other than Vestar and its Affiliates.
<PAGE> 39
36
5.6 Successors, Assigns and Transferees. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their Permitted Transferees and their respective successors, each of
which Permitted Transferees shall agree, in a writing in form and substance
satisfactory to the Company and the owners on a fully diluted basis of
Securities representing at least a majority of the voting power represented by
all Securities outstanding on a fully diluted basis and owned by all
Stockholders, to become a party hereto and be bound to the same extent as its
transferor hereby, provided that no Stockholder may assign to any Permitted
Transferee any of its rights hereunder other than in connection with a Transfer
to such Permitted Transferee of Securities in accordance with the provisions of
this Agreement.
5.7 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or when delivered by a
recognized courier or, in the case of telecopy notice, when received, addressed
as follows to the parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
if to the Company, Sheridan or Vestar, to it:
c/o Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Facsimile: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Facsimile: (212) 455-2502
if to any other Stockholder, to such Stockholder at such
Stockholder's address or telecopy number set forth in the books
and records of the Company.
5.8 Integration. This Agreement and the documents referred to herein
or delivered pursuant hereto contain the entire understanding of the parties
with respect to the subject matter hereof and thereof. There are no agreements,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof and thereof other than those expressly set forth herein
and therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE> 40
37
5.9 Severability. If one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
5.11 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
except for matters directly within the purview of the General Corporation Law of
the State of Delaware (the "DGCL"), which shall be governed by the DGCL.
5.12 Jurisdiction. Any action to enforce, which arises out of or in
any way relates to, any of the provisions of this Agreement may be brought and
prosecuted in such court or courts located within the States of New York as
provided by law; and the parties consent to the jurisdiction of such court or
courts located within the States of New York and to service of process by
registered mail, return receipt requested, or by any other manner provided by
New York law.
5.13 Management Investors. Each employee or director of the Company
or any of its Subsidiaries who becomes party to a stock subscription agreement
or option agreement with any of the Company and its Subsidiaries after the date
hereof shall become a party hereto and shall be bound hereby. The Company shall
not issue any securities to an employee or director of the Company or any of its
Subsidiaries unless he or she enters into a supplementary agreement with the
Company agreeing to be bound by the terms hereof in the same manner as the other
Management Investors. Each such supplementary agreement shall become effective
upon its execution by the Company and such employee or director, and it shall
not require the signature or consent of any other party hereto. Such
supplementary agreement may modify some of the terms hereof as they effect such
employee or director; provided that the modified terms shall be no more
favorable to such employee or director than the terms set forth herein.
5.14 83(b) Election. Promptly after the Closing Date, each
Management Investor shall, with respect to all Securities beneficially owned by
such Management Investor, make a timely election under Section 83(b) of the Code
in accordance with applicable Regulations thereunder.
5.15 Management Investor Representative. Each Management Investor
hereby designates and appoints (and each Permitted Transferee of each such
Management Investor shall be deemed to have so designated and appointed)
Mitchell Eisenberg, with full power of substitution (the "Management Investor
Representative") as the representative of each such Person to perform all such
acts as are required, authorized or contemplated by this Agreement to
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38
be performed by any such Person and hereby acknowledges that the Management
Investor Representative shall be the only Person authorized to take any action
so required, authorized or contemplated by this Agreement by each such Person.
Each such Person further acknowledges that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive the
death or incapacity of such Person. Each such Person hereby authorizes (and each
Permitted Transferee shall be deemed to have authorized) the other parties
hereto to disregard any notice or other action taken by such Person pursuant to
this Agreement on any action so taken or any notice given by the Management
Investor Representative and are and will be entitled and authorized to give
notices only to the Management Investor Representative for any notice
contemplated by this Agreement to be given to any such Person. A successor to
the Management Investor Representative may be chosen by Management Investors
which own on a fully diluted basis Securities representing at least a majority
of the voting power represented by all Securities outstanding on a fully diluted
basis and owned by all Management Investors, provided that written notice
thereof is given by the successor to the Management Investor Representative to
the Company. Whenever any action or consent (but not any forbearance) is
required to be taken or given by the Management Investors, the action or consent
of the Management Investor Representative shall be considered the act or consent
of all the Management Investors, and Vestar and the Company shall be protected
in relying on such act or consent.
5.16 Covenant Not to Compete. (a) Each Management Investor who is
not a Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
non-competition provision hereby covenants and agrees that, except as provided
below, during the Term of Employment and the Non-Competition Period, the
Management Investor shall not, without the express written consent of the
Company, directly or indirectly, engage in any activity which is, or participate
or invest in or assist (whether as owner, part-owner, stockholder, partner,
director, officer, trustee, employee, agent, independent contractor or
consultant, or in any other capacity) any Competitive Enterprise, except that
the Management Investor may make passive investments in a Competitive Enterprise
the shares of which are publicly traded if such investment constitutes less than
one percent of the equity of such enterprise. Without implied limitation, the
forgoing covenant shall include hiring or attempting to hire for or on behalf of
any such Competitive Enterprise any officer or other employee of Sheridan or any
Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee
to terminate his or her relationship or employment with Sheridan or any
Affiliate of Sheridan, soliciting for or on behalf of any such Competitive
Enterprise any client or customer (including any Medical Customer) of Sheridan
or any Affiliate of Sheridan, and diverting to any Person, any client or
business opportunity of Sheridan or any Affiliate of Sheridan.
(b) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period, each
Management Investor who is not a Senior Management Investor and who is not a
party to a written employment agreement with the Company or any of its
Subsidiaries that contains a non-competition provision shall not devote any time
to consulting, lecturing or engaging in other self-employment or employment
activities without the prior written consent of Sheridan.
(c) This Section 5.16 shall survive the termination of this
Agreement.
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39
5.17 Business Opportunities. Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a business
opportunities provision agrees, while he is employed by any of the Company and
its Subsidiaries, to offer or otherwise make known or available to the Company
or any Subsidiary, as directed by the Company and without additional
compensation or consideration, any business prospects, contracts or other
business opportunities that he may discover, find, develop or otherwise have
available to him in any field in which the Company or any of its Affiliates is
engaged, and further agrees that any such prospects, contracts or other business
opportunities shall be the property of the Company.
5.18 Confidentiality. (a) Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
confidentiality provision acknowledges that the Management Investor has and will
necessarily become informed of, and have access to, certain valuable and
confidential information of the Company and its Affiliates, including, without
limitation, trade secrets, technical information, plans, lists of patients,
data, records, fee schedules, computer programs, manuals, processes, methods,
intangible rights, contracts, agreements, licenses, personnel information and
the identity of health care providers (collectively, the "Confidential
Information"), and that the Confidential Information, even though it may be
contributed, developed or acquired in whole or in part by the Management
Investor, is the Company's exclusive property to be held by the Management
Investor in trust and solely for the Company's benefit. Accordingly, except as
required by law, the Management Investor shall not, at any time, either during
or subsequent to the Term of Employment, use, reveal, report, publish, copy,
transcribe, Transfer or otherwise disclose to any person, corporation or other
entity, any of the Confidential Information without the prior written consent of
the Company, except to responsible officers and employees of the Company and its
Subsidiaries and other responsible persons who are in a contractual or fiduciary
relationship with the Company or one of its Subsidiaries and except for
information which legally and legitimately is or becomes of general public
knowledge from authorized sources other than the Management Investor.
(b) Upon the termination of the Term of Employment, each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a confidentiality provision shall promptly deliver to the Company all
property and possessions of the Company and its Subsidiaries, including all
drawings, manuals, letters, notes, notebooks, reports, copies, deliverable
Confidential Information and all other materials relating to the Company's and
its Subsidiaries' business which are in the Management Investor's possession or
control.
5.19 Effectiveness. This Agreement shall become effective on the
Closing Date.
<PAGE> 43
40
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg
---------------------------------
Name: Mitchell Eisenberg
VESTAR/CALVARY INVESTORS, LLC
By: VESTAR CAPITAL PARTNERS III, L.P.,
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
<PAGE> 44
/s/ Mitchell Eisenberg
--------------------------------------
MITCHELL EISENBERG
/s/ Lewis D. Gold
--------------------------------------
LEWIS D. GOLD
/s/ Michael F. Schundler
--------------------------------------
MICHAEL F. SCHUNDLER
/s/ Jay a. Martus
--------------------------------------
JAY A. MARTUS
/s/ Gilbert L. Drozdow
--------------------------------------
GILBERT L. DROZDOW
<PAGE> 45
SCHEDULE 1
INITIAL OTHER
MANAGEMENT INVESTORS
GILBERT L. DROZDOW
<PAGE> 1
Exhibit (c)(3)
December 1, 1998
Mr. James L. Elrod, Jr.
Vestar Capital Partners
245 Park Avenue
New York, NY 10167
Dear Mr. Elrod:
You have requested information from Sheridan Healthcare, Inc. (the
"Company") in connection with your consideration of a possible acquisition by
you of all or part of the Company (an "Acquisition Transaction"). As a condition
to our furnishing such information to you, we are requiring that you agree, as
set forth below, to treat confidentially such information, whether written or
oral, and any other information that the Company, its agents or its
representatives (including attorneys and financial advisors) furnishes to you or
your directors, officers, employees, agents, advisors, prospective bank or
institutional lenders, affiliates or representatives of your agents, advisors or
prospective lenders (all of the foregoing collectively referred to as "your
Representatives"), whether furnished before or after the date of this letter,
and all notes, analyses, compilations, studies or other documents, whether
prepared by you or others, which contain or otherwise reflect such information
(collectively, the "Evaluation Material").
The term "Evaluation Material" does not include information which
(i) becomes generally available to the public other than as a result of a
disclosure by you or your Representatives, (ii) was available to you on a
non-confidential basis prior to its disclosure to you by the Company, its
representatives or its agent, or (iii) becomes available to you on a
non-confidential basis from a source other than the Company, its representatives
or its agents, provided that such source is not, to your knowledge after due
inquiry, bound by a confidentiality agreement with the Company, its
representatives or its agents or otherwise, to your knowledge after due inquiry,
prohibited from transmitting the information to you or your Representatives by a
contractual, legal or fiduciary obligation.
It is understood that you may disclose any of the Evaluation
Material to those of your Representatives who require such material for the
purpose of evaluating a possible Acquisition Transaction (provided that such
Representatives shall be informed by you of the confidential nature of the
Evaluation Material). You agree that the Evaluation Material will be kept
confidential by you and your Representatives and, except with the specific prior
written consent of the Company or as expressly otherwise
<PAGE> 2
permitted by the terms hereof, will not be disclosed by you or your
Representatives. You further agree that you and your Representatives will not
use any of the Evaluation Material for any reason or purpose other than to
evaluate a possible Acquisition Transaction.
<PAGE> 3
Without the prior written consent of the Company, you and your
Representatives will not disclose to any person (1) the fact that the Evaluation
Material has been made available to you or that you have inspected any portion
of the Evaluation Material, (2) the fact that any discussions or negotiations
are taking place concerning a possible Acquisition Transaction, or (3) any of
the terms, conditions or other facts with respect to any possible Acquisition
Transaction, including the status thereof, unless and only to the extent that
such disclosure (after making reasonable efforts to avoid such disclosure and
after advising and consulting with the Company about your intention to make, and
the proposed contents of such disclosure) is, in the opinion of your counsel,
required by applicable United States securities laws. The term "person" as used
in this letter shall be broadly interpreted to include without limitation any
corporation, company, partnership and individual.
In the event that you or any of your Representatives are requested
or required (by oral questions, interrogatories, requests for information or
documents, subpoena, Civil Investigative Demand or similar process) to disclose
any of the Evaluation Material, it is agreed that you or such Representative, as
the case may be, will provide the Company with prompt notice of such request(s)
so that it may seek an appropriate protective order or other appropriate remedy
and/or waive your or such Representative's compliance with the provisions of
this Agreement. In the event that such protective order or other remedy is not
obtained, or that the Company grants a waiver hereunder, you or such
Representative may furnish that portion (and only that portion) of the
Evaluation Material which, in the written opinion of your counsel, you are
legally compelled to disclose and will exercise your best efforts to obtain
reliable assurance that confidential treatment will be accorded any Evaluation
Material so furnished.
In addition, you hereby acknowledge that you are aware (and that
your Representatives who are apprised of this matter have been or will be
advised) that the United States securities laws restrict persons with material
non-public information about a company obtained directly or indirectly from that
company from purchasing or selling securities of such company, or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities.
You agree that for a period of three years from the date of this
letter agreement, neither you nor any of your affiliates, alone or with others,
will in any manner (1) acquire, agree to acquire, or make any proposal (or
request permission to make any proposal) to acquire any securities (or direct or
indirect rights, warrants or options to acquire any securities) or property of
the Company (other than property transferred in the ordinary course of the
Company's business), unless such acquisition, agreement or making of a proposal
shall have been expressly first approved (or in the case of a proposal,
expressly first invited) by the Company's Board of Directors, (2) except at the
specific written request of the Company, propose to enter into, directly or
indirectly, any merger or business combination involving the Company or any of
its subsidiaries, (3) solicit proxies from shareholders of the Company or
otherwise seek to influence or control the management or policies of the Company
or any of its affiliates, (4) form, join or in any way participate in a "group"
(within the meaning of
-3-
<PAGE> 4
Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any
voting securities of the Company or any of its subsidiaries, (5) otherwise act,
alone or in concert with others, to seek to control or influence the management,
Board of Directors or policies of the Company, (6) disclose any intention, plan
or arrangement inconsistent with the foregoing or (7) assist, advise or
encourage (including by knowingly providing or arranging financing for that
purpose) any other person in doing any of the foregoing. You also agree during
such period not to (1) request the Company (or its directors, officers,
employees or agents), directly or indirectly, to amend or waive any provisions
of this paragraph (including this sentence), or (2) take any action which might
require the Company to make a public announcement regarding the possibility of a
business combination, merger or extraordinary transaction. You hereby represent
that neither you nor your affiliates beneficially own any shares of the Common
Stock of the Company.
You further agree to cause each of your independent financial
advisors to agree expressly in writing to the provisions of this Agreement,
including this paragraph (with such writing to be delivered to the Company),
provided that the foregoing shall not prevent any such financial advisor (or
affiliate thereof) who is a registered broker-dealer customarily engaged in the
arbitrage or trading business from (a) purchasing or selling securities of the
Company in the ordinary course of such business in compliance with applicable
law, with all trading decisions being made by individuals who have neither
received any Evaluation Material nor become aware of the possibility of an
Acquisition Transaction (provided that in no event shall such financial advisor
- - -- together with its affiliates -- acquire beneficial ownership of 5% or more of
any class of the outstanding voting securities of the Company) or (b) making
margin loans in the ordinary course of its business in connection with the
acquisition by any person or group of less than 5% beneficial ownership of any
class of the outstanding voting securities of the Company.
You agree that, without the prior written consent of the Company,
neither you nor those of your Representatives who are aware of the Evaluation
Material and/or the possibility of an Acquisition Transaction will initiate or
cause to be initiated or maintain (other than through Salomon Smith Barney Inc.
and Bowles Hollowell Conner & Co.) any communications with any officer,
director, agent or employee of the Company concerning the Company's business,
operations, prospects or finances or the Evaluation Material or any possible
Acquisition Transaction. Moreover, you further agree that Salomon Smith Barney
Inc. and Bowles Hollowell Conner & Co. will arrange for appropriate contacts for
due diligence purposes and that all (a) communications regarding any possible
Acquisition Transaction, (b) requests for additional information, (c) requests
for facility tours or management meetings and (d) discussions or questions
regarding procedures, will be submitted or directed to Salomon Smith Barney Inc.
and Bowles Hollowell Conner & Co.
You agree that, for a period of two years from the date hereof,
without the prior written consent of the Company, you will not solicit, directly
or indirectly, solicit for employment or hire, or cause to be, directly or
indirectly, solicited for employment or hired, any person employed by the
Company or its subsidiaries or affiliates at any time during such period and to
whom you had been directly or indirectly introduced or
-4-
<PAGE> 5
otherwise had contact with during or as the result of your review of the
Evaluation Material or your consideration of an Acquisition Transaction.
You will promptly upon the written request of the Company deliver
to the Company all documents or other matter furnished by the Company to you or
your Representatives constituting Evaluation Material, together with all copies
thereof in the possession of you or your Representatives. In the event of such
request, all other documents or other matter constituting Evaluation Material,
or any analyses, compilations, studies or other documents containing or
reflecting your use of the Evaluation Material, in the possession of you or your
Representatives will be destroyed, with any such destruction confirmed by you in
writing to the Company.
Although you understand that the Company has endeavored to include
in the Evaluation Material information known to it which it believes to be
relevant for the purpose of your investigation, you further understand that
neither the Company nor its agents or its representatives makes any
representation or warranty, express or implied, as to the accuracy or
completeness of the Evaluation Material. You agree that neither the Company nor
its officers, directors, stockholders, owners, affiliates, agents or
representatives shall have any liability to you or any of your Representatives
or any other person resulting from the use of the Evaluation Material by you or
such representatives. Only those representations and warranties that may be made
to you or affiliates in definitive written agreement for an Acquisition
Transaction, when, as and if executed and subject to such limitations and
restrictions as may be specified therein, shall have any legal effect, and you
agree that if you determine to engage in an Acquisition Transaction such
determination will be based solely on the terms of such written agreement and on
your own investigation, analysis and assessment of the business to be acquired.
You also hereby agree that no contract or agreement providing for
an Acquisition Transaction will be deemed to exist between you and the Company
and/or the owners or stockholders of the Company unless and until a definitive
written agreement has been signed, executed and delivered by you and the Company
and/or such owners or stockholders. Moreover, unless and until such a definitive
written agreement is entered into, executed and delivered, none of the Company,
its stockholders or its affiliates or you will be under any legal obligation of
any kind whatsoever with respect to any Acquisition Transaction except for the
matters specifically agreed to in this Agreement. You also hereby waive, in
advance, any claims (including, without limitation, claims for breach of
contract) in connection with any Acquisition Transaction or any other
transaction unless and until such a definitive, written agreement is entered
into, executed and delivered. For the purposes of this paragraph, a "definitive
written agreement" does not include an executed letter of intent or any other
preliminary written agreement, nor does it include any written or oral
acceptance of any offer or bid.
You understand that (a) the Company shall be free to conduct any
process with respect to a possible Acquisition Transaction as the Company in its
sole discretion shall determine (including, without limitation, by negotiating
with any prospective party and entering into a definitive written agreement
without prior notice to you or any other person), (b) any procedures relating to
such Acquisition Transaction may be
-5-
<PAGE> 6
changed at any time without notice to you or any other person and (c) you shall
not have any claim whatsoever against the Company, Salomon Smith Barney Inc. or
Bowles Hollowell Conner & Co. or any of their respective directors, officers,
stockholders, owners, affiliates, agents or representatives, arising out of or
relating to any possible or actual Acquisition Transaction (other than those as
against parties to a definitive written agreement with you in accordance with
the terms thereof).
You hereby agree to indemnify and hold harmless the Company from
any damage, loss, cost or liability (including legal fees and the cost of
enforcing this indemnity) arising out of or resulting from any unauthorized use
or disclosure by you or your Representatives of the Evaluation Material.
You also acknowledge that money damages would be both incalculable
and an insufficient remedy for any breach of this Agreement by you or your
Representatives and that any such breach would cause the Company irreparable
harm. Accordingly, you agree that in the event of any breach of threatened
breach of this Agreement, the Company, in addition to any other remedies at law
or in equity it may have, shall be entitled, without the requirement of posting
a bond or other security, to equitable relief, including injunctive relief and
specific performance.
You also hereby irrevocably and unconditionally consent to submit
to the exclusive jurisdiction of any court of competent jurisdiction located in
the state Delaware for any actions, suits or proceedings arising out of or
relating to this Agreement and the transactions contemplated hereby (and you
agree not to commence any action, suit or proceeding relating thereto except in
such courts), and further agree that service of any process, summons, notice or
document by U.S. registered mail to your address set forth above shall be
effective service of process for any action, suit or proceeding brought against
you in any such court. You hereby irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in the court of the
State of Delaware and hereby further irrevocably and unconditionally waive and
agree not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
The agreements set forth in this Agreement may be modified or
waived only by a separate writing signed by the Company and you expressly so
modifying or waiving such agreements.
It is understood and agreed that no failure or delay by the
Company in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any right, power or
privilege hereunder.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this letter agreement, which shall remain in full force and
effect.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
-6-
<PAGE> 7
If you are in agreement with the foregoing, please sign and return
one copy of this letter, which thereupon will constitute our Agreement with
respect to the subject matter hereof.
Very truly yours,
Sheridan Healthcare, Inc.
By ____________________________
William C. McGahan
Salomon Smith Barney Inc.
on behalf of
Sheridan Healthcare, Inc.
Confirmed and agreed to as of the date first above written:
VESTAR CAPITAL PARTNERS III, L.P.
By: Vestar Associates III, L.P.
Its: General Partner
By: Vestar Associates Corporation III
Its: General Partner
By:
Its: Managing Director
-7-
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of March 24, 1999 (the "Agreement"),
between Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), and
Mitchell Eisenberg (the "Executive").
PRELIMINARY STATEMENTS
WHEREAS, on the date hereof, Vestar/Calvary, Inc. ("Acquisition"),
Vestar/Calvary Holdings, Inc. ("Holdings") and the Company are entering into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
Acquisition will merge into the Company (the "Merger"), with the Company
constituting the surviving corporation;
WHEREAS, Acquisition and the Company desire that, effective upon the
purchase by Acquisition of shares of the Company's common stock pursuant to the
Offer (as defined in the Merger Agreement), the Company employ the Executive and
enter into an agreement embodying the terms of such employment and the Executive
desires to accept such employment with the Company and enter into such an
agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and for other good and valuable consideration, the parties agree as
follows:
AGREEMENT
1. Effectiveness of Agreement/Prior Agreements.
(a) Notwithstanding any other provision of this Agreement,
this Agreement shall constitute a binding obligation of the parties hereto as of
the date hereof but shall become effective only upon the date of Acquisition's
purchase of shares of the Company's common stock pursuant to the Offer (such
date being hereinafter referred to as the "Commencement Date"); provided,
however, that for this Agreement to continue to be effective after the ninetieth
day following the Merger, Holdings shall, within ninety (90) days following the
Merger, obtain shareholder approval intended to satisfy Section 280G(b)(5)(B) of
the Internal Revenue Code of 1986, as amended (the "Shareholder Approval"). If
the Shareholder Approval is not obtained or the Merger Agreement is terminated
for any reason without shares of the Company's common stock being purchased
pursuant to the Offer, this Agreement shall, at such time, be terminated without
further obligation or liability of either party.
(b) Effective as of the Commencement Date, this Agreement
shall supercede all prior agreements and understandings (including verbal
agreements) between the Executive and the Company and/or its affiliates
regarding the terms and conditions of Executive's employment with the Company
and its affiliates including, without limitation, the Executive Employment
Agreement dated as of December 1, 1994 with the Company (f/k/a SAMA Holdings,
Inc.) and Sheridan Healthcorp, Inc. (f/k/a Southeastern Anesthesia Management
Associates), as amended
<PAGE> 2
2
(the "Prior Employment Agreement" and together with such other prior agreements
and understandings, collectively, the "Prior Agreements"); provided that this
Agreement shall not supercede the Executive's rights to expense reimbursement or
benefits under the Company's employee benefits plans, programs and arrangements.
It is expressly agreed that from and after the Commencement Date the Company and
its affiliates shall have no further obligations under, and the Executive shall
have no further rights under, the Prior Employment Agreement including, without
limitation, any severance, termination, or change of control related benefits.
2. Employment. Subject to the provisions of this Agreement, the Company
shall employ the Executive, and the Executive agrees that he will be so
employed, upon the terms and conditions hereinafter set forth.
3. Term of Employment. Subject to the provisions of this Agreement,
unless earlier terminated pursuant to Section 7, the term of Executive's
employment pursuant to this Agreement (the "Term of Employment") shall remain
effective until the fifth anniversary of the Commencement Date (the "Scheduled
Expiration Date"). Notwithstanding the preceding sentence, commencing with the
Scheduled Expiration Date and on each anniversary of the Scheduled Expiration
Date thereafter (each an "Extension Date"), the Term of Employment shall be
automatically extended for an additional one-year period, unless the Company or
the Executive provides the other party hereto six (6) months' prior written
notice before the next Extension Date that the Term of Employment shall not be
so extended. For the avoidance of doubt, the term "Term of Employment" shall
include any extension that becomes applicable pursuant to the preceding
sentence.
4. Duties.
(a) During the Term of Employment, beginning on the Commencement Date
the Executive (i) shall continue to serve as the President and Chief Executive
Officer of the Company or in a position carrying an equivalent or more senior
title, as reasonably determined by the Board of Directors, (ii) shall perform
such duties and responsibilities as may be determined by the Board of Directors
of the Company consistent with the Executive's title and position as an
executive officer of the Company pursuant to the preceding clause (i), (iii)
upon request of the Board of Directors of the Company, shall serve as an officer
and/or director of the Company and any of its subsidiaries and (iv) shall render
all services reasonably incident to the foregoing. The Executive agrees to use
the Executive's best efforts in, and shall devote the Executive's full working
time, attention, skill and energies to, the advancement of the interests of the
Company and/or its Subsidiaries and the performance of the Executive's duties
and responsibilities hereunder, except for (x) vacation time and absence for
sickness or similar disability and (y) to the extent that it does not interfere
with the performance of the Executive's duties hereunder, (A) such reasonable
time as may be devoted to service on the boards of directors of other
corporations and entities, subject to the provisions of Section 8, on which the
Executive currently serves and which are disclosed on Exhibit A hereto or any
other boards of directors on which the Executive may serve in the future,
subject to the consent of the Company's Board of Directors (not to be
unreasonably withheld), and the fulfillment of civic responsibilities and (B)
such reasonable time as may necessary from time to time for personal financial
matters.
<PAGE> 3
3
(b) In performing the Executive's duties under this Agreement, the
Executive shall use reasonable good faith efforts to comply with and follow all
written policies, standards, rules and regulations established by the Company
from time to time and shall be bound by and comply with the terms and conditions
of other written agreements to which the Company is a party, or to which it may
become a party during the Term of Employment, that are applicable to executive
officers of the Company in their capacity as such and not in their capacity as
physicians, in any case under this Section 4(b), provided Executive has
knowledge of such policies, standards, rules, regulations or agreements, as the
case may be.
(c) During and subsequent to the Term of Employment, the Executive
agrees that the Executive shall immediately notify the Company of any and all
notices of claims made or threats thereof of which the Executive has knowledge
arising out of the Executive's services during or prior to the Term of
Employment as soon as the Executive becomes aware of this information and shall
cooperate in any investigation and in the defense of any claims made or threats
thereof.
(d) During and subsequent to the Term of Employment, the Executive
shall assign, account and pay to the Company all accounts receivable,
compensation and any other form of remuneration due from or paid by any source
other than the Company that is paid to the Executive and is attributable to
services he has rendered in the Executive's professional capacity on behalf of
the Company during the Term of Employment or sums which come into the
Executive's possession which are attributable to the services of other employees
of the Company on behalf of the Company.
5. Compensation.
(a) During the Term of Employment, the Company shall pay the Executive
as compensation for the performance of the Executive's duties under this
Agreement, a salary at an annual rate of $375,000 per annum from the
Commencement Date (as such base salary may be increased from time to time, the
"Base Salary"). Such salary shall be subject to such increases, if any (but not
decreases), as may be determined in the sole discretion of the compensation
committee of the Company's Board of Directors. Executive's salary shall be
subject to withholding under applicable law and shall be payable in periodic
installments in accordance with the Company's usual practice for its senior
executives, as in effect from time to time.
(b) During the Term of Employment, the Company shall maintain an annual
incentive compensation plan (the "Annual Bonus Plan") for its senior executives
in which the Executive shall be entitled to participate in accordance with the
terms thereof as in effect from time to time, at a level commensurate with the
Executive's position and duties with the Company. During the Term of Employment,
the Executive shall be eligible to receive an annual target bonus equal to 50%
of the Base Salary pursuant to the Annual Bonus Plan, based upon the
satisfaction of performance targets established by the Company's Board of
Directors in its sole discretion. It is the Company's intention that its Board
of Directors shall use its best commercial efforts to establish such performance
targets during the first 120 days of each fiscal year.
<PAGE> 4
4
(c) Upon the occurrence of the Effective Time (as defined in the Merger
Agreement), the Company shall pay the Executive a cash bonus in the amount of
$650,000.
6. Benefits.
(a) During the Term of Employment, the Executive shall be entitled to
participate in any and all pension, profit sharing, medical, dental and/or life
insurance plans (collectively, the "Benefits") as may be in effect from time to
time for senior executives of the Company. Such participation shall be subject
to (i) the terms of the applicable plan documents, (ii) policies of the Company
generally applicable to senior executives and (iii) the discretion of the Board
of Directors of the Company or any administrative or other committee provided
for in or contemplated by such plans, including discretion with respect to
creation, maintenance and continuation of particular benefits, plans and
arrangements. Notwithstanding anything to the contrary contained herein, the
Executive shall at any time be entitled to at least those Benefits that are
equivalent in nature to those Benefits available at such time to the employees
or executives of the Company generally.
(b) The Company shall promptly reimburse the Executive for all
reasonable business expenses (including business travel and entertainment
expenses) incurred by the Executive during the Term of Employment in accordance
with the Company's practices for senior executives of the Company, as in effect
from time to time.
(c) During the Term of Employment, the Executive shall be entitled to
five (5) weeks paid vacation time during each calendar year the Executive is
employed under this Agreement (pro-rated for the final partial calendar year of
the Term of Employment). Vacation time shall be used within the calendar in
which they accrue, and vacation time shall only be used at the times and
intervals mutually agreed upon between Executive and the Company. The Executive
shall not be entitled to any additional compensation for unused vacation days.
(d) During the Term of Employment the Executive shall receive a car
allowance of $500 per month and the Executive shall provide an automobile which
shall be available at all times for the purpose of performing the Executive's
duties under this Agreement and for carrying on the business activities of the
Company. The Executive shall adequately insure such automobile and the
Executive, in accordance with all applicable laws and regulations, against
claims for bodily injury, death or property damage occurring as a result of the
use of the automobile and all other automobiles used by the Executive in
connection with the Executive's employment under this Agreement.
(e) During the Term of Employment, the Company shall pay the
Executive's applicable hospital medical staff fees and professional license fees
as reasonably requested by the Executive.
(f) During the Term of Employment, the Company shall reimburse the
Executive for dues and fees for the period of membership covering such Term of
Employment for any of the following professional associations which are paid by
the Executive during the Executive's Term of Employment: (i) American Medical
Association; (ii) Florida Medical Association; (iii)
<PAGE> 5
5
American Society of Anesthesiologists; (iv) Florida Society of
Anesthesiologists; and (v) an applicable County Medical Association.
Reimbursement shall be made after Executive's presentation of an expense
statement and paid receipt and any other supporting information the Company may
reasonably request.
7. Termination of Employment of the Executive. Notwithstanding any
other provision of this Agreement, the provisions of this Section 7 shall
exclusively govern the Executive's rights under this Agreement upon a
termination of the Executive's employment with the Company and its affiliates.
Notwithstanding the foregoing, the Executive shall be entitled to receive such
expense reimbursement and benefits accrued under any plan, policy or program of
the Company in accordance with the terms of such plan, policy or program,
including, without limitation, reimbursement for reasonable business expenses
incurred. During the Term of Employment, this Agreement and the Executive's
employment hereunder may be terminated as follows under subparagraph (a) through
(h) inclusive:
(a) At any time by the mutual consent of the Executive and the
Company. Upon termination pursuant to this Section 7(a), all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than obligations with respect to earned but
unpaid Base Salary and professional liability insurance as provided in
Section 10(c), to the extent applicable.
(b) At any time for "cause" by the Company upon written notice
of termination to the Executive, which notice specifies in reasonable
detail the facts and circumstances claimed to give rise to the
Company's right to terminate the Executive's employment for cause;
provided that, for any termination for cause to be effective, the
Executive and his counsel must be permitted to attend a meeting of the
Board of Directors within 30 days (and the Board may insist within 20
days) after delivery to the Executive of such notice of termination
pursuant to this Section 7(b) to explain why the Executive should not
be terminated for cause (a "Cause Meeting") and, following any such
explanation, the Board of Directors must confirm that the Company has
cause to terminate the Executive's employment; provided further that
(i) if the Executive declines or fails to attend the Cause Meeting,
such termination shall be effective immediately upon such declination
or failure and (ii) the Company may require the Executive to cease
performing further duties to the Company until the conclusion of the
Cause Meeting without constituting grounds for the Executive's
termination of employment pursuant to Section 7(f). For purposes of
this Agreement, a termination shall be for "cause" if the Board of
Directors of the Company reasonably determines that:
(i) the Executive has committed an act of
fraud, embezzlement, misappropriation or breach of
fiduciary duty against the Company or its affiliates
or felony involving the business, assets or customers
or clients of the Company or its affiliates or has
been convicted by a court of competent jurisdiction
or has plead guilty or nolo contendere to any other
felony; or
(ii) the Executive has committed a material
breach of any of the covenants, terms or provisions
of Sections 8, 9 or 12 hereof; or
<PAGE> 6
6
(iii) the Executive substantially has failed
to perform the Executive's duties hereunder,
including by committing a material breach of any of
the covenants, terms or provisions hereof (other than
pursuant to Sections 8, 9, or 12), which failure or
breach has not been remedied within a reasonable time
specified by the Company that is not less than thirty
(30) days after delivery to the Executive by the
Company of written notice thereof; or
(iv) the Executive has breached the
Executive's obligation contained in Section 13 of
this Agreement.
Upon termination for cause as provided in this Section 7(b),
(A) all obligations of the Company under this Agreement thereupon
immediately shall terminate, other than any obligations with respect to
earned but unpaid Base Salary and professional liability insurance as
provided in Section 10(c), to the extent applicable, and (B) the
Company shall have any and all rights and remedies under this Agreement
and applicable law.
(c) Upon the Executive's death or upon the Executive's
permanent disability (as defined below) continuing for a period of one
hundred eighty (180) days. Upon termination in the event of death or
permanent disability as provided in this Section 7(c), such termination
will be treated as a termination by the Company without Cause and the
rights and obligations of the parties shall be as set forth in Section
7(e), provided that in the case of the death of the Executive, any
payments shall be made to the Executive's estate. As used herein, the
term "permanent disability" or "permanently disabled" is hereby defined
as the inability of the Executive, by reason of injury, illness or
other similar cause, to perform a major part of the duties and
responsibilities which the Executive had been performing pursuant to
this Agreement prior to the date of disability in connection with the
conduct of the business and affairs of the Company.
(d) At any time by the Executive upon ninety (90) days' prior
written notice to the Company. Upon termination by the Executive as
provided in this Section 7(d), all obligations of the Company under
this Agreement thereupon immediately shall terminate, other than any
obligations with respect to the earned but unpaid Base Salary, any
accrued but unpaid incentive bonus in accordance with Section 5(b)
hereof for any previously completed fiscal year and professional
liability insurance as provided in Section 10(c), to the extent
applicable.
(e) At any time without "cause" (as defined in Section 7(b))
by the Company upon written notice to the Executive of not less than
thirty (30) days. In the event of termination of the Executive by the
Company pursuant to this Section 7(e), the Company shall, subject to
the Executive's continued compliance with the provisions of Section 8,
(i) pay to the Executive an amount equal to twice the Executive's Base
Salary according to the terms of Section 5(a) hereof, in equal
installments over the 12 months following the termination of employment
pursuant to the Company's payroll practices, (ii) continue the
Executive's benefits, car allowance and reimbursements as provided in
Section 6 hereof from the effective date of termination through the
date that is twelve (12) months from the date of such termination,
(iii) pay to the Executive the Executive's pro rata
<PAGE> 7
7
portion (based on the number of days the Executive is employed during
the applicable year as compared to 365 days) of the bonus that the
Executive would have been eligible to receive pursuant to Section 5(b)
hereof if he had been employed pursuant to this Agreement for the whole
year based upon the Company's actual financial performance for the
applicable year as measured against the performance objectives for such
year, determined and calculated in accordance with the terms of the
Annual Bonus Plan (the "Pro-Rata Bonus"), payable when bonuses are
generally paid to the Company's senior executives and (iv) any accrued
but unpaid incentive bonus in accordance with Section 5(b) for any
previously completed fiscal year. In addition, in the event such
termination of the Executive's employment by the Company without cause
occurs within one year following the occurrence of a Change of Control,
then, in addition to the amounts described in clauses (i), (ii), (iii)
and (iv) above, the Company shall, subject to the Executive's continued
compliance with the provisions of Section 8, pay to the Executive a
lump sum cash payment on the first anniversary of the date of the
Executive's termination of employment in an amount equal to the excess,
if any, of (A) the greater of (1) $1 million or (2) twice the sum of
(x) Executive's Base Salary as in effect on the date of termination and
(y) the bonus he received in respect of the year prior to the year of
the Executive's termination over (B) the amounts paid pursuant to (i)
above. Notwithstanding the foregoing provisions of this Section 7(e),
if the Executive terminates the Executive's employment pursuant to
Section 7(f) following any reduction in the Base Salary, the Base
Salary amount applicable under this Section 7(e) shall be the amount in
effect prior to any reduction thereof. Upon termination by the Company
without cause as provided in this Section 7(e), except for the
compensation and benefits expressly provided in this Section 7(e), all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to earned but
unpaid Base Salary and professional liability insurance as provided in
Section 10(c), if applicable.
For purposes of this Agreement, "Change of Control" shall mean Change
of Control as defined in the Vestar/Calvary Holdings, Inc. 1999 Stock
Option Plan.
(f) Upon written notice by the Executive upon the continuation
of any of the following (without the Executive's written consent) after
written notice (the "Good Reason Notice") by the Executive to the
Company describing in reasonable detail the occurrence of one or more
of the following events and the failure by the Company to remedy such
event(s) within thirty (30) days after receipt of the Good Reason
Notice: (i) the Company has failed to pay the Executive the Base Salary
(or any installment thereof) provided for in Section 5(a) or (if
applicable) the annual incentive bonus, if any, payable under Section
5(b) upon such date as payment is due in accordance with Section 5(a)
or (if applicable) Section 5(b), (ii) the Company fails to make
available to the Executive any benefit plan or compensation plan
(including any pension, profit sharing, life insurance, health,
accidental death or dismemberment or disability plan) that has been
made available generally to the senior executives of the Company
(subject to applicable eligibility and waiting periods applicable to
senior executives generally) or reduces the Benefits to which the
Executive is entitled so that they are not at least equivalent in
nature to those Benefits available at such time to the employees or
executives of the
<PAGE> 8
8
Company generally, provided that nothing in this Section 7(f) shall be
construed to mean that the Company shall be constrained in any manner
from amending or eliminating any benefit or compensation plan as such
is applied to the Executive and the other senior executives of the
Company generally, (iii) the principal offices of the Company are moved
to a location more than 30 miles from the Company's current
headquarters in Broward County in the State of Florida, or (iv) the
Company has substantially failed to perform any of its obligations
hereunder, including by committing a material breach of any of the
covenants, terms or provisions hereof, by a demotion in Executive's
titles from those contemplated by this Agreement or by assigning to the
Executive duties representing a diminution from those contemplated by
this Agreement. The Executive shall have no right of termination under
this Section 7(f) in the event the relevant default described in the
Good Reason Notice is cured within the 30 day period following the
Company's receipt of the Good Reason Notice. In the event of the
Executive's termination of employment pursuant to this Section 7(f),
such termination shall be treated for purposes of this Agreement as a
termination by the Company without "cause" and the provisions of
Section 7(e) shall apply, including if the Executive's termination of
employment pursuant to this Section 7(f) occurs within the one year
period following a Change of Control, the provisions of Section 7(e)
concerning the rights and obligations of the parties in the event of
the Executive's termination by the Company without cause following a
Change of Control.
(g) Upon the expiration of the Term of Employment due to the
Executive's election not to extend the Term of Employment pursuant to
Section 3. Upon termination of the Term of Employment by the Executive
as provided in this Section 7(g), unless the Executive's employment is
earlier terminated pursuant to paragraphs (a) through (f) of this
Section 7, the Executive's termination of employment hereunder (whether
or not the Executive continues as an employee of the Company
thereafter) shall be deemed to occur on the close of business on the
day immediately preceding the next scheduled Extension Date and all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to the earned
but unpaid Base Salary, any accrued but unpaid incentive bonus in
accordance with Section 5(b) for any previously completed fiscal year,
the Pro-Rata Bonus for the year in which such termination occurs and
professional liability insurance as provided in Section 10(c), to the
extent applicable.
(h) Upon the expiration of the Term of Employment due to the
Company's election not to extend the Term of Employment pursuant to
Section 3. Upon termination of the Term of Employment by the Company as
provided in this Section 7(h), unless the Executive's employment is
earlier terminated pursuant to paragraphs (a) through (f) of this
Section 7, the Executive's termination of employment hereunder (whether
or not the Executive continues as an employee of the Company
thereafter) shall be deemed to occur on the close of business on the
day immediately preceding the next scheduled Extension Date and all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to earned but
unpaid Base Salary, any accrued but unpaid incentive bonus in
accordance with Section 5(b) for any previously completed fiscal year,
the Pro-Rata Bonus for the year in which such
<PAGE> 9
9
termination occurs, and professional liability insurance as provided in
Section 10(c), to the extent applicable. In addition, the Company
shall, subject to the Executive's continued compliance with the
provisions of Section 8, pay to the Executive an amount equal to twice
the Executive's annual Base Salary according to the terms of Section
5(a) hereof, in equal installments over the 12 months following the
termination of employment pursuant to the Company's payroll practices.
In the event of any termination of this Agreement as provided in this
Section 7, the Executive shall immediately resign from, and surrender, all
medical staff and other privileges ("Privileges"), at any hospital, ambulatory
surgical center or other facility where the Company provides services and
Executive waives any and all due claims of any kind whatsoever, including due
process claims, the Executive or the Executive's estate may have against the
Company and all other parties with respect to the termination of the Executive's
Privileges.
Unless the Company and the Executive otherwise agree in writing,
continuation of the Executive's employment with the Company beyond the
expiration or termination of the Term of Employment shall be deemed an
employment at will and shall not be deemed to extend any of the provisions of
this Agreement and the Executive's employment may thereafter be terminated at
will by either the Executive or the Company.
8. Non-Competition.
(a) Except as provided below, during the Term of Employment and for the
Non-Competition Period, the Executive shall not, without the express written
consent of the Company, directly or indirectly, engage in any activity which is,
or participate or invest in or assist (whether as owner, part-owner,
stockholder, partner, director, officer, trustee, employee, agent, independent
contractor or consultant, or in any other capacity) any Competitive Enterprise,
except that the Executive may make passive investments in a Competitive
Enterprise the shares of which are publicly traded if such investment
constitutes less than one percent of the outstanding equity of such enterprise.
Without implied limitation, the forgoing covenant shall include hiring or
attempting to hire for or on behalf of any such Competitive Enterprise any
officer or other employee of the Company or any Subsidiary of the Company or any
Controlled Entity, encouraging any officer, Health Care Provider or employee to
terminate his or her relationship or employment with the Company or any
Subsidiary of the Company or Controlled Entity, soliciting for or on behalf of
any such Competitive Enterprise any client or customer (including any Medical
Customer) of the Company or any Subsidiary of the Company or any Controlled
Entity, and diverting to any Person any client or business opportunity of the
Company, or any Subsidiary of the Company or Controlled Entity.
(b) The term "Non-Competition Period" shall mean the period commencing
on the last day of the Term of Employment and ending on the first anniversary of
the last day of the Term of Employment or, in the event the Executive fails to
commence employment with the Company as of the Commencement Date, until the
first anniversary of the Commencement Date.
(c) For purposes of this Section 8:
<PAGE> 10
10
"Affiliate" shall mean, as to any Person, (i) each direct or
indirect Subsidiary of such Person, (ii) each other Person of which
such Person is a direct or indirect Subsidiary, and (iii) each other
direct or indirect Subsidiary of such other Person.
"Columbia" means the hospitals and ambulatory surgical
facilities owned by Columbia/HCA Healthcare, Inc.
"Competitive Enterprise" means any Person the activities,
products or services of which (A) are competitive with activities,
products or services of the Company or any of its Controlled Entities
in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Executive's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services,
including without limitation, the provision of anesthesia services,
pain management services, emergency room services, primary medical care
services, neonatology, perinatology and radiology services; (2) the
provision of Payor Services; (3) the provision of administrative
services for medical services and Payor Services, including without
limitation, quality assurance services, utilization management
services, billing services, recruitment services and medical management
information services; or (4) the provision of services or products of
any nature to Columbia.
"Controlled Entity" shall have the meaning ascribed thereto in
the Merger Agreement.
"Health Care Provider" means any physician, nurse, technician
or allied health care provider providing medical services on behalf of
the Company or any Controlled Entity on a full or part-time basis as an
independent contractor or consultant.
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs,
PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions,
hospitals, clinics, ambulatory surgery centers, Medicare intermediaries
and Medicaid intermediaries.
"Payor Services" means payor services in the area of managed
care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs,
HMOs, PSOs, capitation pools and other similar arrangements.
"Person" shall mean an individual, a corporation, an
association, a partnership, an estate, a trust, and any other entity or
organization.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which
fifty percent (50%) or more of the total voting power of shares of
capital stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof, or fifty percent (50%) or more of the equity interest therein,
is at the time owned or controlled,
<PAGE> 11
11
directly or indirectly, by any Person or one or more of the other
Subsidiaries of such Person or a combination thereof.
(d) In furtherance and not in limitation of the foregoing restrictions,
during the Term of Employment and the Non-Competition Period, subject to Section
4, the Executive shall not devote any time to consulting, lecturing or engaging
in other self-employment or employment activities without the prior written
consent of the Company.
9. Business Opportunities. The Executive agrees, while he is employed
by the Company, to offer or otherwise make known or available to the Company or
any subsidiary, as directed by the Company and without additional compensation
or consideration, any business prospects, contracts or other business
opportunities that he may discover, find, develop or otherwise have available to
him in any field in which the Company is engaged, and further agrees that any
such prospects, contracts or other business opportunities shall be the property
of the Company.
10. Professional Liability Insurance. During the Term of Employment, if
the Executive's duties hereunder include provision of medical services, the
following will apply:
(a) the Company shall make all reasonable efforts to obtain (and if
obtained, shall pay the cost of) adequate professional liability insurance
coverage (subject to availability) at commercially reasonable rates to provide
protection for the Executive and the Company for the Executive's provision of
medical services while acting in the scope of the Executive's employment
pursuant to the terms and conditions of this Agreement, as determined and
approved by the Company's Board of Directors, in its absolute sole discretion;
(b) the Company may, in its absolute discretion, cancel, modify,
change, replace or substitute any professional liability insurance coverage for
the Executive and/or the Company for the Executive's provision of medical
services while acting in the scope of the Executive's employment pursuant to the
terms and conditions of this Agreement which was obtained by the Company
pursuant to its obligations under this Section 10; provided, however, that if
any such cancellation, modification, change, replacement or substitution results
in the reduction of the coverage limits below one million dollars ($1,000,000)
per occurrence and three million dollars ($3,000,000) in the annual aggregate,
then not less than ninety (90) days prior to the effectiveness of such
reduction, the Company will provide written notice thereof to the Executive and,
in the Executive's sole discretion, the Executive may elect not less than thirty
(30) days after such notice to terminate the Term of Employment under this
Agreement in accordance with Section 7(d), provided that the notice period with
respect to such termination shall be reduced to sixty (60) days and the notice
provided for in Section 7(d) shall (i) indicate that such termination is being
effected in accordance with the provisions of this Section 10(b), and (ii)
describe the cancellation, modification, change, replacement or substitution,
and state that the Executive has determined in good faith that the resulting
coverage constitutes inadequate liability protection for the Executive for the
Executive's provision of medical services pursuant to this Agreement;
<PAGE> 12
12
(c) upon termination of the Term of Employment under this Agreement for
any reason other than in connection with the reduction of professional liability
insurance coverage limits as contemplated in Section 10(b), the Company shall,
at the Company's expense, continue to cover the Executive, from the date of
termination through the expiration of all applicable statutes of limitation, for
medical malpractice claims arising out of the Executive's employment under this
Agreement by, at the Company's option and subject to availability at
commercially reasonable rates: (i) continuing the continuous claims made
professional liability insurance policy in effect on the last day of the Term of
Employment; (ii) purchasing a replacement continuous claims made professional
liability insurance policy with retroactive coverage that does not create any
lapse in coverage; or, (iii) purchasing an appropriate extended reporting
endorsement ("tail coverage");
(d) upon termination of the Term of Employment under this Agreement in
connection with the reduction of professional liability insurance coverage
limits as contemplated in Section 10(b), the Company shall reimburse the
Executive in an aggregate amount of up to Ten Thousand Dollars ($10,000) for the
costs of the Executive's purchase of appropriate tail coverage for medical
malpractice claims arising out of the Executive's employment under this
Agreement that are made during the period from the date of termination of the
Term of Employment through the second anniversary of such termination, with
coverage limits equal to the coverage limits of the professional liability
insurance provided by the Company prior to the reduction;
(e) the Executive shall immediately execute and deliver, in strict
accordance with Company's instructions, all documents and instruments necessary
to effectuate the provisions of this Section 10;
(f) the Executive agrees to act in full accordance with the terms and
conditions of any and all professional liability insurance policies; and
(g) each party (i) recognizes that time is of the essence with respect
to each of their obligations in this Agreement and (ii) agrees to act as soon as
practicable in light of the particular circumstances and use the Executive's or
its best efforts in as timely a fashion as possible to maximize the intended
benefits of this Agreement.
11. Representations and Warranties of Executive/Indemnification.
(a) The Executive represents and warrants to the Company (i) that the
Executive (A) is able to enter into and perform all duties under this Agreement,
and (B) is in good mental and, except as set forth on Exhibit B hereto, physical
health and does not suffer from any illness or disability which could prevent
him from fulfilling the Executive's responsibilities under this Agreement; (ii)
that the Executive is not a party to or bound by any agreement, arrangement or
understanding that would interfere with, hinder or conflict with the performance
of the Executive's duties hereunder, and (iii) that none of the representations
or warranties made by the Executive in this Agreement or in any interviews,
references, resumes or curricula vitae submitted to the Company or in any
insurance applications or any staff membership applications submitted to any
third party in connection with this Agreement, contains or will contain any
<PAGE> 13
13
untrue statement of a material fact, or omits or will omit to state a material
fact necessary in order to make the statements or provisions therein and in this
Agreement not misleading or incomplete.
(b) The Executive agrees to immediately notify the Company of any fact
or circumstance of which he becomes aware during the Term of Employment, which
in itself or with the passage of time and/or the combination with other
reasonably anticipated factors known to the Executive does render or will render
any of these representations and warranties to be untrue.
(c) The Company hereby agrees that it shall indemnify and hold harmless
the Executive to the fullest extent permitted by Delaware law from and against
any and all liabilities, costs, claims, and expenses, including all costs and
expenses incurred in defense of litigation (including attorneys' fees), arising
out of the employment of the Executive with the Company. Costs and expenses
incurred by the Executive in defense of such litigation (including attorneys'
fees) shall be paid by the Company in advance of the final disposition of such
litigation upon receipt by the Company of (a) a written request, (b) appropriate
documentation evidencing the incurrence, amount and nature of the costs and
expense for which payment is being sought, and (c) an undertaking made by or on
behalf of the Executive to repay the amounts so paid if it shall ultimately be
determined that the Executive is not entitled to be indemnified by the Company
under Delaware law. During the Term of Employment, the Company shall maintain in
effect, at its sole expense, directors' and officers' liability insurance
policies providing for coverage and reimbursement amounts and policies that are
customary and appropriate for companies of similar size and nature to the
Company and that cover claims (subject to customary exceptions) arising from
facts or events that occur at any time during the period of the Executive's
employment with the Company.
12. Confidentiality.
(a) The Executive acknowledges that as a result of the Executive's
employment with the Company, the Executive has and will necessarily become
informed of, and have access to, certain valuable and confidential information
of the Company, including, without limitation, trade secrets, technical
information, plans, lists of patients, data, records, fee schedules, computer
programs, manuals, processes, methods, intangible rights, contracts, agreements,
licenses, personnel information and the identity of health care providers
(collectively, the "Confidential Information"), and that the Confidential
Information, even though it may be contributed, developed or acquired in whole
or in part by the Executive, is the Company's exclusive property to be held by
the Executive in trust and solely for the Company's benefit. Accordingly, except
as required by law, by an order of a court having jurisdiction or under subpoena
from a government agency, the Executive shall not, at any time, either during or
subsequent to the Term of Employment, use, reveal, report, publish, copy,
transcribe, transfer or otherwise disclose to any person, corporation or other
entity, any of the Confidential Information without the prior written consent of
the Company, except to officers and employees of the Company and other persons
who are in a contractual or fiduciary relationship with the Company and except
for information which is or becomes of general public knowledge from sources
other than the Executive.
<PAGE> 14
14
(b) Upon the termination of this Agreement, the Executive shall
promptly deliver to the Company all Company property and possessions including
all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable
Confidential Information and all other materials relating to the Company's
business which are in the Executive's possession or control.
13. Substance Abuse Policy. It is the Company's policy that none of its
employees shall use or abuse any controlled substances at any time or be under
the influence of alcohol or be affected by the use of alcohol during the time
period required to perform their duties and obligations under any employment
agreements. Company and the Executive both acknowledge and agree that the
purpose of this policy is for the benefit of the Company, the Executive and the
individuals whom they serve.
In compliance with this policy, the Executive agrees to submit
to random drug testing immediately upon the Company's request in accordance with
practices and policies in effect from time to time for physician employees of
the Company. Testing may include, but shall not be limited to, the taking of
blood and urine samples and utilization of gas chromatography. Unless otherwise
provided in the practices and policies in effect from time to time for physician
employees of the Company, in the event that a positive test result is reached
indicating a violation of the Company's policy, the Executive may, at the
Executive's own expense and subject to the supervision and approval of the
Company of the manner and testing facilities utilized, elect to have a second
drug test performed on a second portion of the same sample. The Company may, in
its sole and absolute discretion, terminate the Executive for cause pursuant to
Section 7(b) of this Agreement in the event either: (a) a positive test result
is received in the initial drug test and the Executive fails to exercise the
Executive's option for a second test in the manner provided for in this Section
13 or in accordance with practices and policies in effect from time to time for
physician employees of the Company; or (b) positive test results are received
from both tests. In the event that the second test result is negative, the
Company may, at any time, retest the Executive pursuant to the terms of this
Section 13 and the practices and policies in effect from time to time for
physician employees of the Company.
14. Specific Performance; Severability. It is specifically understood
and agreed that any breach of the provisions of Sections 8, 9 and 12 hereof and
the obligations referred to and incorporated therein by the Executive is likely
to result in irreparable injury to the Company, that the remedy at law alone
will be an inadequate remedy for such breach and that, in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Executive through both temporary and
permanent injunctive relief, and through any other appropriate equitable relief,
without the necessity of showing or proving actual damages. In case any of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, including without limitation
geographic scope, duration or functional coverage, any such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had been limited or modified (consistent with its
general intent) to the extent necessary to make it valid, legal and enforceable,
or if it shall not be possible to so limit or modify such invalid, illegal or
unenforceable provision or part of a provision, this Agreement shall be
construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
<PAGE> 15
15
15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or mailed by certified or registered mail (return receipt
requested) as follows:
To the Company:
Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 200
Hollywood, FL 33021
Attn: General Counsel
(954) 964-2611
Fax: (954) 987-8359
With copies to:
Vestar Capital Partners III, L.P.
Att: Robert L. Rosner
245 Park Avenue
41st Floor
New York, NY 10167
(212) 351-1600
Fax: (212) 808-4922
and,
Brian D. Robbins, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
(212) 455-2000
Fax: (212) 455-2502
To the Executive:
Mitchell Eisenberg
3321 SW 58th Street
Fort Lauderdale, FL 33312
(954) 961-8254
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
16. Miscellaneous. This Agreement shall be governed by and construed
under the laws and solely in the courts of the State of Florida without regard
to the conflicts of law provisions thereof, and shall not be amended, modified
or discharged in whole or in part except by an agreement in writing signed by
each of the parties hereto. The failure of any of the parties to
<PAGE> 16
16
require the performance of a term or obligation or to exercise any right under
this Agreement or the waiver of any breach hereunder shall not prevent
subsequent enforcement of such term or obligation or exercise of such right or
the enforcement at any time of any other right hereunder or be deemed a waiver
of any subsequent breach of the provision so breached, or of any other breach
hereunder. This Agreement shall inure to the benefit of successors of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company, shall be binding upon the heirs, executors,
administrators and legal representatives of the Executive and may not be
assigned by the Executive. This Agreement supersedes all prior understandings
and agreements among the parties relating to the subject matter hereof
including, without limitation, the Prior Agreements. The Company may withhold
from any amounts payable under this Agreement such Federal, state and local
taxes as may be required to be withheld pursuant to applicable law or
regulation.
17. Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT,
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY
ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE
STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
FLORIDA IN BROWARD COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL
JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE
STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE
ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY
TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
<PAGE> 17
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IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first set forth above.
SHERIDAN HEALTHCARE, INC.
By: /s/ Jay A. Martus
-----------------------------------
JAY A. MARTUS
Vice President
EXECUTIVE:
/s/ Mitchell Eisenberg
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MITCHELL EISENBERG
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of March 24, 1999 (the "Agreement"),
between Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), and
Lewis Gold (the "Executive").
PRELIMINARY STATEMENTS
WHEREAS, on the date hereof, Vestar/Calvary, Inc. ("Acquisition"),
Vestar/Calvary Holdings, Inc. ("Holdings") and the Company are entering into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
Acquisition will merge into the Company (the "Merger"), with the Company
constituting the surviving corporation;
WHEREAS, Acquisition and the Company desire that, effective upon the
purchase by Acquisition of shares of the Company's common stock pursuant to the
Offer (as defined in the Merger Agreement), the Company employ the Executive and
enter into an agreement embodying the terms of such employment and the Executive
desires to accept such employment with the Company and enter into such an
agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and for other good and valuable consideration, the parties agree as
follows:
AGREEMENT
1. Effectiveness of Agreement/Prior Agreements.
(a) Notwithstanding any other provision of this Agreement,
this Agreement shall constitute a binding obligation of the parties hereto as of
the date hereof but shall become effective only upon the date of Acquisition's
purchase of shares of the Company's common stock pursuant to the Offer (such
date being hereinafter referred to as the "Commencement Date"); provided,
however, that for this Agreement to continue to be effective after the ninetieth
day following the Merger, Holdings shall, within ninety (90) days following the
Merger, obtain shareholder approval intended to satisfy Section 280G(b)(5)(B) of
the Internal Revenue Code of 1986, as amended (the "Shareholder Approval"). If
the Shareholder Approval is not obtained or the Merger Agreement is terminated
for any reason without shares of the Company's common stock being purchased
pursuant to the Offer, this Agreement shall, at such time, be terminated without
further obligation or liability of either party.
(b) Effective as of the Commencement Date, this Agreement
shall supercede all prior agreements and understandings (including verbal
agreements) between the Executive and the Company and/or its affiliates
regarding the terms and conditions of Executive's employment with the Company
and its affiliates including, without limitation, the Executive Employment
Agreement dated as of December 1, 1994 with the Company (f/k/a SAMA Holdings,
Inc.) and Sheridan Healthcorp, Inc. (f/k/a Southeastern Anesthesia Management
Associates), as amended
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(the "Prior Employment Agreement" and together with such other prior agreements
and understandings, collectively, the "Prior Agreements"); provided that this
Agreement shall not supercede the Executive's rights to expense reimbursement or
benefits under the Company's employee benefits plans, programs and arrangements.
It is expressly agreed that from and after the Commencement Date the Company and
its affiliates shall have no further obligations under, and the Executive shall
have no further rights under, the Prior Employment Agreement including, without
limitation, any severance, termination, or change of control related benefits.
2. Employment. Subject to the provisions of this Agreement, the Company
shall employ the Executive, and the Executive agrees that he will be so
employed, upon the terms and conditions hereinafter set forth.
3. Term of Employment. Subject to the provisions of this Agreement,
unless earlier terminated pursuant to Section 7, the term of Executive's
employment pursuant to this Agreement (the "Term of Employment") shall remain
effective until the fifth anniversary of the Commencement Date (the "Scheduled
Expiration Date"). Notwithstanding the preceding sentence, commencing with the
Scheduled Expiration Date and on each anniversary of the Scheduled Expiration
Date thereafter (each an "Extension Date"), the Term of Employment shall be
automatically extended for an additional one-year period, unless the Company or
the Executive provides the other party hereto six (6) months' prior written
notice before the next Extension Date that the Term of Employment shall not be
so extended. For the avoidance of doubt, the term "Term of Employment" shall
include any extension that becomes applicable pursuant to the preceding
sentence.
4. Duties.
(a) During the Term of Employment, beginning on the
Commencement Date the Executive (i) shall continue to serve as the Executive
Vice President of the Company or in a position carrying an equivalent or more
senior title, as reasonably determined by the Board of Directors, (ii) shall
perform such duties and responsibilities as may be determined by the Board of
Directors of the Company consistent with the Executive's title and position as
an executive officer of the Company pursuant to the preceding clause (i), (iii)
upon request of the Board of Directors of the Company, shall serve as an officer
and/or director of the Company and any of its subsidiaries and (iv) shall render
all services reasonably incident to the foregoing. The Executive agrees to use
the Executive's best efforts in, and shall devote the Executive's full working
time, attention, skill and energies to, the advancement of the interests of the
Company and/or its Subsidiaries and the performance of the Executive's duties
and responsibilities hereunder, except for (x) vacation time and absence for
sickness or similar disability and (y) to the extent that it does not interfere
with the performance of the Executive's duties hereunder, (A) such reasonable
time as may be devoted to service on the boards of directors of other
corporations and entities, subject to the provisions of Section 8, on which the
Executive currently serves and which are disclosed on Exhibit A hereto or any
other boards of directors on which the Executive may serve in the future,
subject to the consent of the Company's Board of Directors (not to be
unreasonably withheld), and the fulfillment of civic responsibilities and (B)
such reasonable time as may necessary from time to time for personal financial
matters.
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(b) In performing the Executive's duties under this Agreement,
the Executive shall use reasonable good faith efforts to comply with and follow
all written policies, standards, rules and regulations established by the
Company from time to time and shall be bound by and comply with the terms and
conditions of other written agreements to which the Company is a party, or to
which it may become a party during the Term of Employment, that are applicable
to executive officers of the Company in their capacity as such and not in their
capacity as physicians, in any case under this Section 4(b), provided Executive
has knowledge of such policies, standards, rules, regulations or agreements, as
the case may be.
(c) During and subsequent to the Term of Employment, the
Executive agrees that the Executive shall immediately notify the Company of any
and all notices of claims made or threats thereof of which the Executive has
knowledge arising out of the Executive's services during or prior to the Term of
Employment as soon as the Executive becomes aware of this information and shall
cooperate in any investigation and in the defense of any claims made or threats
thereof.
(d) During and subsequent to the Term of Employment, the
Executive shall assign, account and pay to the Company all accounts receivable,
compensation and any other form of remuneration due from or paid by any source
other than the Company that is paid to the Executive and is attributable to
services he has rendered in the Executive's professional capacity on behalf of
the Company during the Term of Employment or sums which come into the
Executive's possession which are attributable to the services of other employees
of the Company on behalf of the Company.
5. Compensation.
(a) During the Term of Employment, the Company shall pay the
Executive as compensation for the performance of the Executive's duties under
this Agreement, a salary at an annual rate of $350,000 per annum from the
Commencement Date (as such base salary may be increased from time to time, the
"Base Salary"). Such salary shall be subject to such increases, if any (but not
decreases), as may be determined in the sole discretion of the compensation
committee of the Company's Board of Directors. Executive's salary shall be
subject to withholding under applicable law and shall be payable in periodic
installments in accordance with the Company's usual practice for its senior
executives, as in effect from time to time.
(b) During the Term of Employment, the Company shall maintain
an annual incentive compensation plan (the "Annual Bonus Plan") for its senior
executives in which the Executive shall be entitled to participate in accordance
with the terms thereof as in effect from time to time, at a level commensurate
with the Executive's position and duties with the Company. During the Term of
Employment, the Executive shall be eligible to receive an annual target bonus
equal to 50% of the Base Salary pursuant to the Annual Bonus Plan, based upon
the satisfaction of performance targets established by the Company's Board of
Directors in its sole discretion. It is the Company's intention that its Board
of Directors shall use its best commercial efforts to establish such performance
targets during the first 120 days of each fiscal year.
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(c) Upon the occurrence of the Effective Time (as defined in
the Merger Agreement), the Company shall pay the Executive a cash bonus in the
amount of $600,000.
6. Benefits.
(a) During the Term of Employment, the Executive shall be
entitled to participate in any and all pension, profit sharing, medical, dental
and/or life insurance plans (collectively, the "Benefits") as may be in effect
from time to time for senior executives of the Company. Such participation shall
be subject to (i) the terms of the applicable plan documents, (ii) policies of
the Company generally applicable to senior executives and (iii) the discretion
of the Board of Directors of the Company or any administrative or other
committee provided for in or contemplated by such plans, including discretion
with respect to creation, maintenance and continuation of particular benefits,
plans and arrangements. Notwithstanding anything to the contrary contained
herein, the Executive shall at any time be entitled to at least those Benefits
that are equivalent in nature to those Benefits available at such time to the
employees or executives of the Company generally.
(b) The Company shall promptly reimburse the Executive for all
reasonable business expenses (including business travel and entertainment
expenses) incurred by the Executive during the Term of Employment in accordance
with the Company's practices for senior executives of the Company, as in effect
from time to time.
(c) During the Term of Employment, the Executive shall be
entitled to five (5) weeks paid vacation time during each calendar year the
Executive is employed under this Agreement (pro-rated for the final partial
calendar year of the Term of Employment). Vacation time shall be used within the
calendar in which they accrue, and vacation time shall only be used at the times
and intervals mutually agreed upon between Executive and the Company. The
Executive shall not be entitled to any additional compensation for unused
vacation days.
(d) During the Term of Employment the Executive shall receive
a car allowance of $500 per month and the Executive shall provide an automobile
which shall be available at all times for the purpose of performing the
Executive's duties under this Agreement and for carrying on the business
activities of the Company. The Executive shall adequately insure such automobile
and the Executive, in accordance with all applicable laws and regulations,
against claims for bodily injury, death or property damage occurring as a result
of the use of the automobile and all other automobiles used by the Executive in
connection with the Executive's employment under this Agreement.
(e) During the Term of Employment, the Company shall pay the
Executive's applicable hospital medical staff fees and professional license fees
as reasonably requested by the Executive.
(f) During the Term of Employment, the Company shall reimburse
the Executive for dues and fees for the period of membership covering such Term
of Employment for any of the following professional associations which are paid
by the Executive during the Executive's Term of Employment: (i) American Medical
Association; (ii) Florida Medical Association; (iii)
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American Society of Anesthesiologists; (iv) Florida Society of
Anesthesiologists; and (v) an applicable County Medical Association.
Reimbursement shall be made after Executive's presentation of an expense
statement and paid receipt and any other supporting information the Company may
reasonably request.
7. Termination of Employment of the Executive. Notwithstanding any
other provision of this Agreement, the provisions of this Section 7 shall
exclusively govern the Executive's rights under this Agreement upon a
termination of the Executive's employment with the Company and its affiliates.
Notwithstanding the foregoing, the Executive shall be entitled to receive such
expense reimbursement and benefits accrued under any plan, policy or program of
the Company in accordance with the terms of such plan, policy or program,
including, without limitation, reimbursement for reasonable business expenses
incurred. During the Term of Employment, this Agreement and the Executive's
employment hereunder may be terminated as follows under subparagraph (a) through
(h) inclusive:
(a) At any time by the mutual consent of the Executive and the
Company. Upon termination pursuant to this Section 7(a), all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than obligations with respect to earned but
unpaid Base Salary and professional liability insurance as provided in
Section 10(c), to the extent applicable.
(b) At any time for "cause" by the Company upon written notice
of termination to the Executive, which notice specifies in reasonable
detail the facts and circumstances claimed to give rise to the
Company's right to terminate the Executive's employment for cause;
provided that, for any termination for cause to be effective, the
Executive and his counsel must be permitted to attend a meeting of the
Board of Directors within 30 days (and the Board may insist within 20
days) after delivery to the Executive of such notice of termination
pursuant to this Section 7(b) to explain why the Executive should not
be terminated for cause (a "Cause Meeting") and, following any such
explanation, the Board of Directors must confirm that the Company has
cause to terminate the Executive's employment; provided further that
(i) if the Executive declines or fails to attend the Cause Meeting,
such termination shall be effective immediately upon such declination
or failure and (ii) the Company may require the Executive to cease
performing further duties to the Company until the conclusion of the
Cause Meeting without constituting grounds for the Executive's
termination of employment pursuant to Section 7(f). For purposes of
this Agreement, a termination shall be for "cause" if the Board of
Directors of the Company reasonably determines that:
(i) the Executive has committed an act of fraud,
embezzlement, misappropriation or breach of fiduciary duty
against the Company or its affiliates or felony involving the
business, assets or customers or clients of the Company or its
affiliates or has been convicted by a court of competent
jurisdiction or has plead guilty or nolo contendere to any
other felony; or
(ii) the Executive has committed a material breach of
any of the covenants, terms or provisions of Sections 8, 9 or
12 hereof; or
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(iii) the Executive substantially has failed to
perform the Executive's duties hereunder, including by
committing a material breach of any of the covenants, terms or
provisions hereof (other than pursuant to Sections 8, 9, or
12), which failure or breach has not been remedied within a
reasonable time specified by the Company that is not less than
thirty (30) days after delivery to the Executive by the
Company of written notice thereof; or
(iv) the Executive has breached the Executive's
obligation contained in Section 13 of this Agreement.
Upon termination for cause as provided in this Section 7(b),
(A) all obligations of the Company under this Agreement thereupon
immediately shall terminate, other than any obligations with respect to
earned but unpaid Base Salary and professional liability insurance as
provided in Section 10(c), to the extent applicable, and (B) the
Company shall have any and all rights and remedies under this Agreement
and applicable law.
(c) Upon the Executive's death or upon the Executive's
permanent disability (as defined below) continuing for a period of one
hundred eighty (180) days. Upon termination in the event of death or
permanent disability as provided in this Section 7(c), such termination
will be treated as a termination by the Company without Cause and the
rights and obligations of the parties shall be as set forth in Section
7(e), provided that in the case of the death of the Executive, any
payments shall be made to the Executive's estate. As used herein, the
term "permanent disability" or "permanently disabled" is hereby defined
as the inability of the Executive, by reason of injury, illness or
other similar cause, to perform a major part of the duties and
responsibilities which the Executive had been performing pursuant to
this Agreement prior to the date of disability in connection with the
conduct of the business and affairs of the Company.
(d) At any time by the Executive upon ninety (90) days' prior
written notice to the Company. Upon termination by the Executive as
provided in this Section 7(d), all obligations of the Company under
this Agreement thereupon immediately shall terminate, other than any
obligations with respect to the earned but unpaid Base Salary, any
accrued but unpaid incentive bonus in accordance with Section 5(b)
hereof for any previously completed fiscal year and professional
liability insurance as provided in Section 10(c), to the extent
applicable.
(e) At any time without "cause" (as defined in Section 7(b))
by the Company upon written notice to the Executive of not less than
thirty (30) days. In the event of termination of the Executive by the
Company pursuant to this Section 7(e), the Company shall, subject to
the Executive's continued compliance with the provisions of Section 8,
(i) pay to the Executive an amount equal to twice the Executive's Base
Salary according to the terms of Section 5(a) hereof, in equal
installments over the 12 months following the termination of employment
pursuant to the Company's payroll practices, (ii) continue the
Executive's benefits, car allowance and reimbursements as provided in
Section 6 hereof from the effective date of termination through the
date that is twelve (12) months from the date of such termination,
(iii) pay to the Executive the Executive's pro rata
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portion (based on the number of days the Executive is employed during
the applicable year as compared to 365 days) of the bonus that the
Executive would have been eligible to receive pursuant to Section 5(b)
hereof if he had been employed pursuant to this Agreement for the whole
year based upon the Company's actual financial performance for the
applicable year as measured against the performance objectives for such
year, determined and calculated in accordance with the terms of the
Annual Bonus Plan (the "Pro-Rata Bonus"), payable when bonuses are
generally paid to the Company's senior executives and (iv) any accrued
but unpaid incentive bonus in accordance with Section 5(b) for any
previously completed fiscal year. In addition, in the event such
termination of the Executive's employment by the Company without cause
occurs within one year following the occurrence of a Change of Control,
then, in addition to the amounts described in clauses (i), (ii), (iii)
and (iv) above, the Company shall, subject to the Executive's continued
compliance with the provisions of Section 8, pay to the Executive a
lump sum cash payment on the first anniversary of the date of the
Executive's termination of employment in an amount equal to the excess,
if any, of (A) the greater of (1) $1 million or (2) twice the sum of
(x) Executive's Base Salary as in effect on the date of termination and
(y) the bonus he received in respect of the year prior to the year of
the Executive's termination over (B) the amounts paid pursuant to (i)
above. Notwithstanding the foregoing provisions of this Section 7(e),
if the Executive terminates the Executive's employment pursuant to
Section 7(f) following any reduction in the Base Salary, the Base
Salary amount applicable under this Section 7(e) shall be the amount in
effect prior to any reduction thereof. Upon termination by the Company
without cause as provided in this Section 7(e), except for the
compensation and benefits expressly provided in this Section 7(e), all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to earned but
unpaid Base Salary and professional liability insurance as provided in
Section 10(c), if applicable.
For purposes of this Agreement, "Change of Control" shall mean Change
of Control as defined in the Vestar/Calvary Holdings, Inc. 1999 Stock
Option Plan.
(f) Upon written notice by the Executive upon the continuation
of any of the following (without the Executive's written consent) after
written notice (the "Good Reason Notice") by the Executive to the
Company describing in reasonable detail the occurrence of one or more
of the following events and the failure by the Company to remedy such
event(s) within thirty (30) days after receipt of the Good Reason
Notice: (i) the Company has failed to pay the Executive the Base Salary
(or any installment thereof) provided for in Section 5(a) or (if
applicable) the annual incentive bonus, if any, payable under Section
5(b) upon such date as payment is due in accordance with Section 5(a)
or (if applicable) Section 5(b), (ii) the Company fails to make
available to the Executive any benefit plan or compensation plan
(including any pension, profit sharing, life insurance, health,
accidental death or dismemberment or disability plan) that has been
made available generally to the senior executives of the Company
(subject to applicable eligibility and waiting periods applicable to
senior executives generally) or reduces the Benefits to which the
Executive is entitled so that they are not at least equivalent in
nature to those Benefits available at such time to the employees or
executives of the
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Company generally, provided that nothing in this Section 7(f) shall be
construed to mean that the Company shall be constrained in any manner
from amending or eliminating any benefit or compensation plan as such
is applied to the Executive and the other senior executives of the
Company generally, (iii) the principal offices of the Company are moved
to a location more than 30 miles from the Company's current
headquarters in Broward County in the State of Florida, or (iv) the
Company has substantially failed to perform any of its obligations
hereunder, including by committing a material breach of any of the
covenants, terms or provisions hereof, by a demotion in Executive's
titles from those contemplated by this Agreement or by assigning to the
Executive duties representing a diminution from those contemplated by
this Agreement. The Executive shall have no right of termination under
this Section 7(f) in the event the relevant default described in the
Good Reason Notice is cured within the 30 day period following the
Company's receipt of the Good Reason Notice. In the event of the
Executive's termination of employment pursuant to this Section 7(f),
such termination shall be treated for purposes of this Agreement as a
termination by the Company without "cause" and the provisions of
Section 7(e) shall apply, including if the Executive's termination of
employment pursuant to this Section 7(f) occurs within the one year
period following a Change in Control, the provisions of Section 7(e)
concerning the rights and obligations of the parties in the event of
the Executive's termination by the Company without cause following a
Change of Control.
(g) Upon the expiration of the Term of Employment due to the
Executive's election not to extend the Term of Employment pursuant to
Section 3. Upon termination of the Term of Employment by the Executive
as provided in this Section 7(g), unless the Executive's employment is
earlier terminated pursuant to paragraphs (a) through (f) of this
Section 7, the Executive's termination of employment hereunder (whether
or not the Executive continues as an employee of the Company
thereafter) shall be deemed to occur on the close of business on the
day immediately preceding the next scheduled Extension Date and all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to the earned
but unpaid Base Salary, any accrued but unpaid incentive bonus in
accordance with Section 5(b) for any previously completed fiscal year,
the Pro-Rata Bonus for the year in which such termination occurs and
professional liability insurance as provided in Section 10(c), to the
extent applicable.
(h) Upon the expiration of the Term of Employment due to the
Company's election not to extend the Term of Employment pursuant to
Section 3. Upon termination of the Term of Employment by the Company as
provided in this Section 7(h), unless the Executive's employment is
earlier terminated pursuant to paragraphs (a) through (f) of this
Section 7, the Executive's termination of employment hereunder (whether
or not the Executive continues as an employee of the Company
thereafter) shall be deemed to occur on the close of business on the
day immediately preceding the next scheduled Extension Date and all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to earned but
unpaid Base Salary, any accrued but unpaid incentive bonus in
accordance with Section 5(b) for any previously completed fiscal year,
the Pro-Rata Bonus for the year in which such
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termination occurs, and professional liability insurance as provided in
Section 10(c), to the extent applicable. In addition, the Company
shall, subject to the Executive's continued compliance with the
provisions of Section 8, pay to the Executive an amount equal to twice
the Executive's annual Base Salary according to the terms of Section
5(a) hereof, in equal installments over the 12 months following the
termination of employment pursuant to the Company's payroll practices.
In the event of any termination of this Agreement as provided in this
Section 7, the Executive shall immediately resign from, and surrender, all
medical staff and other privileges ("Privileges"), at any hospital, ambulatory
surgical center or other facility where the Company provides services and
Executive waives any and all due claims of any kind whatsoever, including due
process claims, the Executive or the Executive's estate may have against the
Company and all other parties with respect to the termination of the Executive's
Privileges.
Unless the Company and the Executive otherwise agree in writing,
continuation of the Executive's employment with the Company beyond the
expiration or termination of the Term of Employment shall be deemed an
employment at will and shall not be deemed to extend any of the provisions of
this Agreement and the Executive's employment may thereafter be terminated at
will by either the Executive or the Company.
8. Non-Competition.
(a) Except as provided below, during the Term of Employment
and for the Non-Competition Period, the Executive shall not, without the express
written consent of the Company, directly or indirectly, engage in any activity
which is, or participate or invest in or assist (whether as owner, part-owner,
stockholder, partner, director, officer, trustee, employee, agent, independent
contractor or consultant, or in any other capacity) any Competitive Enterprise,
except that the Executive may make passive investments in a Competitive
Enterprise the shares of which are publicly traded if such investment
constitutes less than one percent of the outstanding equity of such enterprise.
Without implied limitation, the forgoing covenant shall include hiring or
attempting to hire for or on behalf of any such Competitive Enterprise any
officer or other employee of the Company or any Subsidiary of the Company or any
Controlled Entity, encouraging any officer, Health Care Provider or employee to
terminate his or her relationship or employment with the Company or any
Subsidiary of the Company or Controlled Entity, soliciting for or on behalf of
any such Competitive Enterprise any client or customer (including any Medical
Customer) of the Company or any Subsidiary of the Company or any Controlled
Entity, and diverting to any Person any client or business opportunity of the
Company, or any Subsidiary of the Company or Controlled Entity.
(b) The term "Non-Competition Period" shall mean the period
commencing on the last day of the Term of Employment and ending on the first
anniversary of the last day of the Term of Employment or, in the event the
Executive fails to commence employment with the Company as of the Commencement
Date, until the first anniversary of the Commencement Date.
(c) For purposes of this Section 8:
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"Affiliate" shall mean, as to any Person, (i) each direct or
indirect Subsidiary of such Person, (ii) each other Person of which
such Person is a direct or indirect Subsidiary, and (iii) each other
direct or indirect Subsidiary of such other Person.
"Columbia" means the hospitals and ambulatory surgical
facilities owned by Columbia/HCA Healthcare, Inc.
"Competitive Enterprise" means any Person the activities,
products or services of which (A) are competitive with activities,
products or services of the Company or any of its Controlled Entities
in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Executive's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services,
including without limitation, the provision of anesthesia services,
pain management services, emergency room services, primary medical care
services, neonatology, perinatology and radiology services; (2) the
provision of Payor Services; (3) the provision of administrative
services for medical services and Payor Services, including without
limitation, quality assurance services, utilization management
services, billing services, recruitment services and medical management
information services; or (4) the provision of services or products of
any nature to Columbia.
"Controlled Entity" shall have the meaning ascribed thereto in
the Merger Agreement.
"Health Care Provider" means any physician, nurse, technician
or allied health care provider providing medical services on behalf of
the Company or any Controlled Entity on a full or part-time basis as an
independent contractor or consultant.
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs,
PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions,
hospitals, clinics, ambulatory surgery centers, Medicare intermediaries
and Medicaid intermediaries.
"Payor Services" means payor services in the area of managed
care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs,
HMOs, PSOs, capitation pools and other similar arrangements.
"Person" shall mean an individual, a corporation, an
association, a partnership, an estate, a trust, and any other entity or
organization.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which
fifty percent (50%) or more of the total voting power of shares of
capital stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof, or fifty percent (50%) or more of the equity interest therein,
is at the time owned or controlled,
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directly or indirectly, by any Person or one or more of the other
Subsidiaries of such Person or a combination thereof.
(d) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period,
subject to Section 4, the Executive shall not devote any time to consulting,
lecturing or engaging in other self-employment or employment activities without
the prior written consent of the Company.
9. Business Opportunities. The Executive agrees, while he is employed
by the Company, to offer or otherwise make known or available to the Company or
any subsidiary, as directed by the Company and without additional compensation
or consideration, any business prospects, contracts or other business
opportunities that he may discover, find, develop or otherwise have available to
him in any field in which the Company is engaged, and further agrees that any
such prospects, contracts or other business opportunities shall be the property
of the Company.
10. Professional Liability Insurance. During the Term of Employment, if
the Executive's duties hereunder include provision of medical services, the
following will apply:
(a) the Company shall make all reasonable efforts to obtain
(and if obtained, shall pay the cost of) adequate professional liability
insurance coverage (subject to availability) at commercially reasonable rates to
provide protection for the Executive and the Company for the Executive's
provision of medical services while acting in the scope of the Executive's
employment pursuant to the terms and conditions of this Agreement, as determined
and approved by the Company's Board of Directors, in its absolute sole
discretion;
(b) the Company may, in its absolute discretion, cancel,
modify, change, replace or substitute any professional liability insurance
coverage for the Executive and/or the Company for the Executive's provision of
medical services while acting in the scope of the Executive's employment
pursuant to the terms and conditions of this Agreement which was obtained by the
Company pursuant to its obligations under this Section 10; provided, however,
that if any such cancellation, modification, change, replacement or substitution
results in the reduction of the coverage limits below one million dollars
($1,000,000) per occurrence and three million dollars ($3,000,000) in the annual
aggregate, then not less than ninety (90) days prior to the effectiveness of
such reduction, the Company will provide written notice thereof to the Executive
and, in the Executive's sole discretion, the Executive may elect not less than
thirty (30) days after such notice to terminate the Term of Employment under
this Agreement in accordance with Section 7(d), provided that the notice period
with respect to such termination shall be reduced to sixty (60) days and the
notice provided for in Section 7(d) shall (i) indicate that such termination is
being effected in accordance with the provisions of this Section 10(b), and (ii)
describe the cancellation, modification, change, replacement or substitution,
and state that the Executive has determined in good faith that the resulting
coverage constitutes inadequate liability protection for the Executive for the
Executive's provision of medical services pursuant to this Agreement;
<PAGE> 12
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(c) upon termination of the Term of Employment under this
Agreement for any reason other than in connection with the reduction of
professional liability insurance coverage limits as contemplated in Section
10(b), the Company shall, at the Company's expense, continue to cover the
Executive, from the date of termination through the expiration of all applicable
statutes of limitation, for medical malpractice claims arising out of the
Executive's employment under this Agreement by, at the Company's option and
subject to availability at commercially reasonable rates: (i) continuing the
continuous claims made professional liability insurance policy in effect on the
last day of the Term of Employment; (ii) purchasing a replacement continuous
claims made professional liability insurance policy with retroactive coverage
that does not create any lapse in coverage; or, (iii) purchasing an appropriate
extended reporting endorsement ("tail coverage");
(d) upon termination of the Term of Employment under this
Agreement in connection with the reduction of professional liability insurance
coverage limits as contemplated in Section 10(b), the Company shall reimburse
the Executive in an aggregate amount of up to Ten Thousand Dollars ($10,000) for
the costs of the Executive's purchase of appropriate tail coverage for medical
malpractice claims arising out of the Executive's employment under this
Agreement that are made during the period from the date of termination of the
Term of Employment through the second anniversary of such termination, with
coverage limits equal to the coverage limits of the professional liability
insurance provided by the Company prior to the reduction;
(e) the Executive shall immediately execute and deliver, in
strict accordance with Company's instructions, all documents and instruments
necessary to effectuate the provisions of this Section 10;
(f) the Executive agrees to act in full accordance with the
terms and conditions of any and all professional liability insurance policies;
and
(g) each party (i) recognizes that time is of the essence with
respect to each of their obligations in this Agreement and (ii) agrees to act as
soon as practicable in light of the particular circumstances and use the
Executive's or its best efforts in as timely a fashion as possible to maximize
the intended benefits of this Agreement.
11. Representations and Warranties of Executive/Indemnification.
(a) The Executive represents and warrants to the Company (i)
that the Executive (A) is able to enter into and perform all duties under this
Agreement, and (B) is in good mental and, except as set forth on Exhibit B
hereto, physical health and does not suffer from any illness or disability which
could prevent him from fulfilling the Executive's responsibilities under this
Agreement; (ii) that the Executive is not a party to or bound by any agreement,
arrangement or understanding that would interfere with, hinder or conflict with
the performance of the Executive's duties hereunder, and (iii) that none of the
representations or warranties made by the Executive in this Agreement or in any
interviews, references, resumes or curricula vitae submitted to the Company or
in any insurance applications or any staff membership applications submitted to
any third party in connection with this Agreement, contains or will contain any
<PAGE> 13
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untrue statement of a material fact, or omits or will omit to state a material
fact necessary in order to make the statements or provisions therein and in this
Agreement not misleading or incomplete.
(b) The Executive agrees to immediately notify the Company of
any fact or circumstance of which he becomes aware during the Term of
Employment, which in itself or with the passage of time and/or the combination
with other reasonably anticipated factors known to the Executive does render or
will render any of these representations and warranties to be untrue.
(c) The Company hereby agrees that it shall indemnify and hold
harmless the Executive to the fullest extent permitted by Delaware law from and
against any and all liabilities, costs, claims, and expenses, including all
costs and expenses incurred in defense of litigation (including attorneys'
fees), arising out of the employment of the Executive with the Company. Costs
and expenses incurred by the Executive in defense of such litigation (including
attorneys' fees) shall be paid by the Company in advance of the final
disposition of such litigation upon receipt by the Company of (a) a written
request, (b) appropriate documentation evidencing the incurrence, amount and
nature of the costs and expense for which payment is being sought, and (c) an
undertaking made by or on behalf of the Executive to repay the amounts so paid
if it shall ultimately be determined that the Executive is not entitled to be
indemnified by the Company under Delaware law. During the Term of Employment,
the Company shall maintain in effect, at its sole expense, directors' and
officers' liability insurance policies providing for coverage and reimbursement
amounts and policies that are customary and appropriate for companies of similar
size and nature to the Company and that cover claims (subject to customary
exceptions) arising from facts or events that occur at any time during the
period of the Executive's employment with the Company.
12. Confidentiality.
(a) The Executive acknowledges that as a result of the
Executive's employment with the Company, the Executive has and will necessarily
become informed of, and have access to, certain valuable and confidential
information of the Company, including, without limitation, trade secrets,
technical information, plans, lists of patients, data, records, fee schedules,
computer programs, manuals, processes, methods, intangible rights, contracts,
agreements, licenses, personnel information and the identity of health care
providers (collectively, the "Confidential Information"), and that the
Confidential Information, even though it may be contributed, developed or
acquired in whole or in part by the Executive, is the Company's exclusive
property to be held by the Executive in trust and solely for the Company's
benefit. Accordingly, except as required by law, by an order of a court having
jurisdiction or under subpoena from a government agency, the Executive shall
not, at any time, either during or subsequent to the Term of Employment, use,
reveal, report, publish, copy, transcribe, transfer or otherwise disclose to any
person, corporation or other entity, any of the Confidential Information without
the prior written consent of the Company, except to officers and employees of
the Company and other persons who are in a contractual or fiduciary relationship
with the Company and except for information which is or becomes of general
public knowledge from sources other than the Executive.
<PAGE> 14
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(b) Upon the termination of this Agreement, the Executive
shall promptly deliver to the Company all Company property and possessions
including all drawings, manuals, letters, notes, notebooks, reports, copies,
deliverable Confidential Information and all other materials relating to the
Company's business which are in the Executive's possession or control.
13. Substance Abuse Policy. It is the Company's policy that none of its
employees shall use or abuse any controlled substances at any time or be under
the influence of alcohol or be affected by the use of alcohol during the time
period required to perform their duties and obligations under any employment
agreements. Company and the Executive both acknowledge and agree that the
purpose of this policy is for the benefit of the Company, the Executive and the
individuals whom they serve.
In compliance with this policy, the Executive agrees to submit
to random drug testing immediately upon the Company's request in accordance with
practices and policies in effect from time to time for physician employees of
the Company. Testing may include, but shall not be limited to, the taking of
blood and urine samples and utilization of gas chromatography. Unless otherwise
provided in the practices and policies in effect from time to time for physician
employees of the Company, in the event that a positive test result is reached
indicating a violation of the Company's policy, the Executive may, at the
Executive's own expense and subject to the supervision and approval of the
Company of the manner and testing facilities utilized, elect to have a second
drug test performed on a second portion of the same sample. The Company may, in
its sole and absolute discretion, terminate the Executive for cause pursuant to
Section 7(b) of this Agreement in the event either: (a) a positive test result
is received in the initial drug test and the Executive fails to exercise the
Executive's option for a second test in the manner provided for in this Section
13 or in accordance with practices and policies in effect from time to time for
physician employees of the Company; or (b) positive test results are received
from both tests. In the event that the second test result is negative, the
Company may, at any time, retest the Executive pursuant to the terms of this
Section 13 and the practices and policies in effect from time to time for
physician employees of the Company.
14. Specific Performance; Severability. It is specifically understood
and agreed that any breach of the provisions of Sections 8, 9 and 12 hereof and
the obligations referred to and incorporated therein by the Executive is likely
to result in irreparable injury to the Company, that the remedy at law alone
will be an inadequate remedy for such breach and that, in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Executive through both temporary and
permanent injunctive relief, and through any other appropriate equitable relief,
without the necessity of showing or proving actual damages. In case any of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, including without limitation
geographic scope, duration or functional coverage, any such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had been limited or modified (consistent with its
general intent) to the extent necessary to make it valid, legal and enforceable,
or if it shall not be possible to so limit or modify such invalid, illegal or
unenforceable provision or part of a provision, this Agreement shall be
construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
<PAGE> 15
15
15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or mailed by certified or registered mail (return receipt
requested) as follows:
To the Company:
Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 200
Hollywood, FL 33021
Attn: General Counsel
(954) 964-2611
Fax: (954) 987-8359
With copies to:
Vestar Capital Partners III, L.P.
Att: Robert L. Rosner
245 Park Avenue
41st Floor
New York, NY 10167
(212) 351-1600
Fax: (212) 808-4922
and,
Brian D. Robbins, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
(212) 455-2000
Fax: (212) 455-2502
To the Executive:
Lewis Gold
2512 Princeton Court
Weston, FL 33327
(954) 349-0844
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
16. Miscellaneous. This Agreement shall be governed by and construed
under the laws and solely in the courts of the State of Florida without regard
to the conflicts of law provisions thereof, and shall not be amended, modified
or discharged in whole or in part except by an agreement in writing signed by
each of the parties hereto. The failure of any of the parties to
<PAGE> 16
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require the performance of a term or obligation or to exercise any right under
this Agreement or the waiver of any breach hereunder shall not prevent
subsequent enforcement of such term or obligation or exercise of such right or
the enforcement at any time of any other right hereunder or be deemed a waiver
of any subsequent breach of the provision so breached, or of any other breach
hereunder. This Agreement shall inure to the benefit of successors of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company, shall be binding upon the heirs, executors,
administrators and legal representatives of the Executive and may not be
assigned by the Executive. This Agreement supersedes all prior understandings
and agreements among the parties relating to the subject matter hereof
including, without limitation, the Prior Agreements. The Company may withhold
from any amounts payable under this Agreement such Federal, state and local
taxes as may be required to be withheld pursuant to applicable law or
regulation.
17. Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT,
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY
ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE
STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
FLORIDA IN BROWARD COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL
JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE
STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE
ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY
TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
<PAGE> 17
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IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first set forth above.
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg
-------------------------
EXECUTIVE:
/s/ Lewis Gold
-------------------------
LEWIS GOLD
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of March 24, 1999 (the "Agreement"),
between Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), and
Michael F. Schundler (the "Executive").
PRELIMINARY STATEMENTS
WHEREAS, on the date hereof, Vestar/Calvary, Inc. ("Acquisition"),
Vestar/Calvary Holdings, Inc. ("Holdings") and the Company are entering into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
Acquisition will merge into the Company (the "Merger"), with the Company
constituting the surviving corporation;
WHEREAS, Acquisition and the Company desire that, effective upon the
purchase by Acquisition of shares of the Company's common stock pursuant to the
Offer (as defined in the Merger Agreement), the Company employ the Executive and
enter into an agreement embodying the terms of such employment and the Executive
desires to accept such employment with the Company and enter into such an
agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and for other good and valuable consideration, the parties agree as
follows:
AGREEMENT
1. Effectiveness of Agreement/Prior Agreements.
(a) Notwithstanding any other provision of this Agreement,
this Agreement shall constitute a binding obligation of the parties hereto as of
the date hereof but shall become effective only upon the date of Acquisition's
purchase of shares of the Company's common stock pursuant to the Offer (such
date being hereinafter referred to as the "Commencement Date"); provided,
however, that for this Agreement to continue to be effective after the ninetieth
day following the Merger, Holdings shall, within ninety (90) days following the
Merger, obtain shareholder approval intended to satisfy Section 280G(b)(5)(B) of
the Internal Revenue Code of 1986, as amended (the "Shareholder Approval"). If
the Shareholder Approval is not obtained or the Merger Agreement is terminated
for any reason without shares of the Company's common stock being purchased
pursuant to the Offer, this Agreement shall, at such time, be terminated without
further obligation or liability of either party.
(b) Effective as of the Commencement Date, this Agreement
shall supercede all prior agreements and understandings (including verbal
agreements) between the Executive and the Company and/or its affiliates
regarding the terms and conditions of Executive's employment with the Company
and its affiliates including, without limitation, the Executive Employment
Agreement dated as of August 9, 1996 with the Company (f/k/a SAMA Holdings,
Inc.) and Sheridan Healthcorp, Inc. (f/k/a Southeastern Anesthesia Management
Associates), as amended
<PAGE> 2
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(the "Prior Employment Agreement" and together with such other prior agreements
and understandings, collectively, the "Prior Agreements"); provided that this
Agreement shall not supercede the Executive's rights to expense reimbursement or
benefits under the Company's employee benefits plans, programs and arrangements.
It is expressly agreed that from and after the Commencement Date the Company and
its affiliates shall have no further obligations under, and the Executive shall
have no further rights under, the Prior Employment Agreement including, without
limitation, any severance, termination, or change of control related benefits.
2. Employment. Subject to the provisions of this Agreement, the Company
shall employ the Executive, and the Executive agrees that he will be so
employed, upon the terms and conditions hereinafter set forth.
3. Term of Employment. Subject to the provisions of this Agreement,
unless earlier terminated pursuant to Section 7, the term of Executive's
employment pursuant to this Agreement (the "Term of Employment") shall remain
effective until the fifth anniversary of the Commencement Date (the "Scheduled
Expiration Date"). Notwithstanding the preceding sentence, commencing with the
Scheduled Expiration Date and on each anniversary of the Scheduled Expiration
Date thereafter (each an "Extension Date"), the Term of Employment shall be
automatically extended for an additional one-year period, unless the Company or
the Executive provides the other party hereto six (6) months' prior written
notice before the next Extension Date that the Term of Employment shall not be
so extended. For the avoidance of doubt, the term "Term of Employment" shall
include any extension that becomes applicable pursuant to the preceding
sentence.
4. Duties.
(a) During the Term of Employment, beginning on the
Commencement Date the Executive (i) shall continue to serve as the Chief
Operating Officer and Chief Financial Officer of the Company or in a position
carrying an equivalent or more senior title, as reasonably determined by the
Board of Directors, (ii) shall perform such duties and responsibilities as may
be determined by the Board of Directors of the Company consistent with the
Executive's title and position as an executive officer of the Company pursuant
to the preceding clause (i), (iii) upon request of the Board of Directors of the
Company, shall serve as an officer and/or director of the Company and any of its
subsidiaries and (iv) shall render all services reasonably incident to the
foregoing. The Executive agrees to use the Executive's best efforts in, and
shall devote the Executive's full working time, attention, skill and energies
to, the advancement of the interests of the Company and/or its Subsidiaries and
the performance of the Executive's duties and responsibilities hereunder, except
for (x) vacation time and absence for sickness or similar disability and (y) to
the extent that it does not interfere with the performance of the Executive's
duties hereunder, (A) such reasonable time as may be devoted to service on the
boards of directors of other corporations and entities, subject to the
provisions of Section 8, on which the Executive currently serves and which are
disclosed on Exhibit A hereto or any other boards of directors on which the
Executive may serve in the future, subject to the consent of the Company's Board
of Directors (not to be unreasonably withheld), and the fulfillment of civic
responsibilities and (B) such reasonable time as may necessary from time to time
for personal financial matters.
<PAGE> 3
3
(b) In performing the Executive's duties under this Agreement,
the Executive shall use reasonable good faith efforts to comply with and follow
all written policies, standards, rules and regulations established by the
Company from time to time and shall be bound by and comply with the terms and
conditions of other written agreements to which the Company is a party, or to
which it may become a party during the Term of Employment, that are applicable
to executive officers of the Company in their capacity as such and not in their
capacity as physicians, in any case under this Section 4(b), provided Executive
has knowledge of such policies, standards, rules, regulations or agreements, as
the case may be.
(c) During and subsequent to the Term of Employment, the
Executive agrees that the Executive shall immediately notify the Company of any
and all notices of claims made or threats thereof of which the Executive has
knowledge arising out of the Executive's services during or prior to the Term of
Employment as soon as the Executive becomes aware of this information and shall
cooperate in any investigation and in the defense of any claims made or threats
thereof.
(d) During and subsequent to the Term of Employment, the
Executive shall assign, account and pay to the Company all accounts receivable,
compensation and any other form of remuneration due from or paid by any source
other than the Company that is paid to the Executive and is attributable to
services he has rendered in the Executive's professional capacity on behalf of
the Company during the Term of Employment or sums which come into the
Executive's possession which are attributable to the services of other employees
of the Company on behalf of the Company.
5. Compensation.
(a) During the Term of Employment, the Company shall pay the
Executive as compensation for the performance of the Executive's duties under
this Agreement, a salary at an annual rate of $275,000 per annum from the
Commencement Date (as such base salary may be increased from time to time, the
"Base Salary"). Such salary shall be subject to such increases, if any (but not
decreases), as may be determined in the sole discretion of the compensation
committee of the Company's Board of Directors. Executive's salary shall be
subject to withholding under applicable law and shall be payable in periodic
installments in accordance with the Company's usual practice for its senior
executives, as in effect from time to time.
(b) During the Term of Employment, the Company shall maintain
an annual incentive compensation plan (the "Annual Bonus Plan") for its senior
executives in which the Executive shall be entitled to participate in accordance
with the terms thereof as in effect from time to time, at a level commensurate
with the Executive's position and duties with the Company. During the Term of
Employment, the Executive shall be eligible to receive an annual target bonus
equal to 25% of the Base Salary pursuant to the Annual Bonus Plan, based upon
the satisfaction of performance targets established by the Company's Board of
Directors in its sole discretion. It is the Company's intention that its Board
of Directors shall use its best commercial efforts to establish such performance
targets during the first 120 days of each fiscal year.
<PAGE> 4
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(c) Upon the occurrence of the Effective Time (as defined in
the Merger Agreement), the Company shall pay the Executive a cash bonus in the
amount of $250,000.
6. Benefits.
(a) During the Term of Employment, the Executive shall be
entitled to participate in any and all pension, profit sharing, medical, dental
and/or life insurance plans (collectively, the "Benefits") as may be in effect
from time to time for senior executives of the Company. Such participation shall
be subject to (i) the terms of the applicable plan documents, (ii) policies of
the Company generally applicable to senior executives and (iii) the discretion
of the Board of Directors of the Company or any administrative or other
committee provided for in or contemplated by such plans, including discretion
with respect to creation, maintenance and continuation of particular benefits,
plans and arrangements. Notwithstanding anything to the contrary contained
herein, the Executive shall at any time be entitled to at least those Benefits
that are equivalent in nature to those Benefits available at such time to the
employees or executives of the Company generally.
(b) The Company shall promptly reimburse the Executive for all
reasonable business expenses (including business travel and entertainment
expenses) incurred by the Executive during the Term of Employment in accordance
with the Company's practices for senior executives of the Company, as in effect
from time to time.
(c) During the Term of Employment, the Executive shall be
entitled to five (5) weeks paid vacation time during each calendar year the
Executive is employed under this Agreement (pro-rated for the final partial
calendar year of the Term of Employment). Vacation time shall be used within the
calendar in which they accrue, and vacation time shall only be used at the times
and intervals mutually agreed upon between Executive and the Company. The
Executive shall not be entitled to any additional compensation for unused
vacation days.
7. Termination of Employment of the Executive. Notwithstanding any
other provision of this Agreement, the provisions of this Section 7 shall
exclusively govern the Executive's rights under this Agreement upon a
termination of the Executive's employment with the Company and its affiliates.
Notwithstanding the foregoing, the Executive shall be entitled to receive such
expense reimbursement and benefits accrued under any plan, policy or program of
the Company in accordance with the terms of such plan, policy or program,
including, without limitation, reimbursement for reasonable business expenses
incurred. During the Term of Employment, this Agreement and the Executive's
employment hereunder may be terminated as follows under subparagraph (a) through
(h) inclusive:
(a) At any time by the mutual consent of the Executive and the
Company. Upon termination pursuant to this Section 7(a), all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than obligations with respect to earned but
unpaid Base Salary.
(b) At any time for "cause" by the Company upon written notice
of termination to the Executive, which notice specifies in reasonable
detail the facts and circumstances
<PAGE> 5
5
claimed to give rise to the Company's right to terminate the
Executive's employment for cause. For purposes of this Agreement, a
termination shall be for "cause" if the Board of Directors of the
Company reasonably determines that:
(i) the Executive has committed an act of fraud,
embezzlement, misappropriation or breach of fiduciary duty
against the Company or its affiliates or felony involving the
business, assets or customers or clients of the Company or its
affiliates or has been convicted by a court of competent
jurisdiction or has plead guilty or nolo contendere to any
other felony; or
(ii) the Executive has committed a material breach of
any of the covenants, terms or provisions of Sections 8, 9 or
11 hereof; or
(iii) the Executive substantially has failed to
perform the Executive's duties hereunder, including by
committing a material breach of any of the covenants, terms or
provisions hereof (other than pursuant to Sections 8, 9, or
11), which failure or breach has not been remedied within a
reasonable time specified by the Company that is not less than
thirty (30) days after delivery to the Executive by the
Company of written notice thereof; or
(iv) the Executive has breached the Executive's
obligation contained in Section 12 of this Agreement.
Upon termination for cause as provided in this Section 7(b),
(A) all obligations of the Company under this Agreement thereupon
immediately shall terminate, other than any obligations with respect to
earned but unpaid Base Salary, and (B) the Company shall have any and
all rights and remedies under this Agreement and applicable law.
(c) Upon the Executive's death or upon the Executive's
permanent disability (as defined below) continuing for a period of one
hundred eighty (180) days. Upon termination in the event of death or
permanent disability as provided in this Section 7(c), such termination
will be treated as a termination by the Company without Cause and the
rights and obligations of the parties shall be as set forth in Section
7(e), provided that in the case of the death of the Executive, any
payments shall be made to the Executive's estate. As used herein, the
term "permanent disability" or "permanently disabled" is hereby defined
as the inability of the Executive, by reason of injury, illness or
other similar cause, to perform a major part of the duties and
responsibilities which the Executive had been performing pursuant to
this Agreement prior to the date of disability in connection with the
conduct of the business and affairs of the Company.
(d) At any time by the Executive upon ninety (90) days' prior
written notice to the Company. Upon termination by the Executive as
provided in this Section 7(d), all obligations of the Company under
this Agreement thereupon immediately shall terminate, other than any
obligations with respect to the earned but unpaid Base Salary and any
accrued but unpaid incentive bonus in accordance with Section 5(b)
hereof for any previously completed fiscal year.
<PAGE> 6
6
(e) At any time without "cause" (as defined in Section 7(b))
by the Company upon written notice to the Executive of not less than
thirty (30) days. In the event of termination of the Executive by the
Company pursuant to this Section 7(e), the Company shall, subject to
the Executive's continued compliance with the provisions of Section 8,
(i) pay to the Executive an amount equal to the Executive's Base Salary
according to the terms of Section 5(a) hereof, in equal installments
over the 12 months following the termination of employment pursuant to
the Company's payroll practices, (ii) continue the Executive's
benefits, car allowance and reimbursements as provided in Section 6
hereof from the effective date of termination through the date that is
twelve (12) months from the date of such termination, (iii) pay to the
Executive the Executive's pro rata portion (based on the number of days
the Executive is employed during the applicable year as compared to 365
days) of the bonus that the Executive would have been eligible to
receive pursuant to Section 5(b) hereof if he had been employed
pursuant to this Agreement for the whole year based upon the Company's
actual financial performance for the applicable year as measured
against the performance objectives for such year, determined and
calculated in accordance with the terms of the Annual Bonus Plan (the
"Pro-Rata Bonus"), payable when bonuses are generally paid to the
Company's senior executives and (iv) any accrued but unpaid incentive
bonus in accordance with Section 5(b) for any previously completed
fiscal year. Notwithstanding the foregoing provisions of this Section
7(e), if the Executive terminates the Executive's employment pursuant
to Section 7(f) following any reduction in the Base Salary, the Base
Salary amount applicable under this Section 7(e) shall be the amount in
effect prior to any reduction thereof. Upon termination by the Company
without cause as provided in this Section 7(e), except for the
compensation and benefits expressly provided in this Section 7(e), all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to earned but
unpaid Base Salary.
(f) Upon written notice by the Executive upon the continuation
of any of the following (without the Executive's written consent) after
written notice (the "Good Reason Notice") by the Executive to the
Company describing in reasonable detail the occurrence of one or more
of the following events and the failure by the Company to remedy such
event(s) within thirty (30) days after receipt of the Good Reason
Notice: (i) the Company has failed to pay the Executive the Base Salary
(or any installment thereof) provided for in Section 5(a) or (if
applicable) the annual incentive bonus, if any, payable under Section
5(b) upon such date as payment is due in accordance with Section 5(a)
or (if applicable) Section 5(b), (ii) the Company fails to make
available to the Executive any benefit plan or compensation plan
(including any pension, profit sharing, life insurance, health,
accidental death or dismemberment or disability plan) that has been
made available generally to the senior executives of the Company
(subject to applicable eligibility and waiting periods applicable to
senior executives generally) or reduces the Benefits to which the
Executive is entitled so that they are not at least equivalent in
nature to those Benefits available at such time to the employees or
executives of the Company generally, provided that nothing in this
Section 7(f) shall be construed to mean that the Company shall be
constrained in any manner from amending or eliminating any benefit or
compensation plan as such is applied to the Executive and the other
senior executives of the Company generally, (iii) the principal offices
of the Company are
<PAGE> 7
7
moved to a location more than 30 miles from the Company's current
headquarters in Broward County in the State of Florida, or (iv) the
Company has substantially failed to perform any of its obligations
hereunder, including by committing a material breach of any of the
covenants, terms or provisions hereof, by a demotion in Executive's
titles from those contemplated by this Agreement or by assigning to the
Executive duties representing a diminution from those contemplated by
this Agreement. The Executive shall have no right of termination under
this Section 7(f) in the event the relevant default described in the
Good Reason Notice is cured within the 30 day period following the
Company's receipt of the Good Reason Notice. In the event of the
Executive's termination of employment pursuant to this Section 7(f),
such termination shall be treated for purposes of this Agreement as a
termination by the Company without "cause" and the provisions of
Section 7(e) shall apply.
(g) Upon the expiration of the Term of Employment due to the
Executive's election not to extend the Term of Employment pursuant to
Section 3. Upon termination of the Term of Employment by the Executive
as provided in this Section 7(g), unless the Executive's employment is
earlier terminated pursuant to paragraphs (a) through (f) of this
Section 7, the Executive's termination of employment hereunder (whether
or not the Executive continues as an employee of the Company
thereafter) shall be deemed to occur on the close of business on the
day immediately preceding the next scheduled Extension Date and all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to the earned
but unpaid Base Salary, any accrued but unpaid incentive bonus in
accordance with Section 5(b) for any previously completed fiscal year
and the Pro-Rata Bonus for the year in which such termination occurs.
(h) Upon the expiration of the Term of Employment due to the
Company's election not to extend the Term of Employment pursuant to
Section 3. Upon termination of the Term of Employment by the Company as
provided in this Section 7(h), unless the Executive's employment is
earlier terminated pursuant to paragraphs (a) through (f) of this
Section 7, the Executive's termination of employment hereunder (whether
or not the Executive continues as an employee of the Company
thereafter) shall be deemed to occur on the close of business on the
day immediately preceding the next scheduled Extension Date and all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to earned but
unpaid Base Salary, any accrued but unpaid incentive bonus in
accordance with Section 5(b) for any previously completed fiscal year
and the Pro-Rata Bonus for the year in which such termination occurs.
In addition, the Company shall, subject to the Executive's continued
compliance with the provisions of Section 8, pay to the Executive an
amount equal to the Executive's annual Base Salary according to the
terms of Section 5(a) hereof, in equal installments over the 12 months
following the termination of employment pursuant to the Company's
payroll practices.
In the event of any termination of this Agreement as provided in this
Section 7, the Executive shall immediately resign from, and surrender, all
medical staff and other privileges ("Privileges"), at any hospital, ambulatory
surgical center or other facility where the Company
<PAGE> 8
8
provides services and Executive waives any and all due claims of any kind
whatsoever, including due process claims, the Executive or the Executive's
estate may have against the Company and all other parties with respect to the
termination of the Executive's Privileges.
Unless the Company and the Executive otherwise agree in writing,
continuation of the Executive's employment with the Company beyond the
expiration or termination of the Term of Employment shall be deemed an
employment at will and shall not be deemed to extend any of the provisions of
this Agreement and the Executive's employment may thereafter be terminated at
will by either the Executive or the Company.
8. Non-Competition.
(a) Except as provided below, during the Term of Employment
and for the Non-Competition Period, the Executive shall not, without the express
written consent of the Company, directly or indirectly, engage in any activity
which is, or participate or invest in or assist (whether as owner, part-owner,
stockholder, partner, director, officer, trustee, employee, agent, independent
contractor or consultant, or in any other capacity) any Competitive Enterprise,
except that the Executive may make passive investments in a Competitive
Enterprise the shares of which are publicly traded if such investment
constitutes less than one percent of the outstanding equity of such enterprise.
Without implied limitation, the forgoing covenant shall include hiring or
attempting to hire for or on behalf of any such Competitive Enterprise any
officer or other employee of the Company or any Subsidiary of the Company or any
Controlled Entity, encouraging any officer, Health Care Provider or employee to
terminate his or her relationship or employment with the Company or any
Subsidiary of the Company or Controlled Entity, soliciting for or on behalf of
any such Competitive Enterprise any client or customer (including any Medical
Customer) of the Company or any Subsidiary of the Company or any Controlled
Entity, and diverting to any Person any client or business opportunity of the
Company, or any Subsidiary of the Company or Controlled Entity.
(b) The term "Non-Competition Period" shall mean the period
commencing on the last day of the Term of Employment and ending on the first
anniversary of the last day of the Term of Employment or, in the event the
Executive fails to commence employment with the Company as of the Commencement
Date, until the first anniversary of the Commencement Date.
(c) For purposes of this Section 8:
"Affiliate" shall mean, as to any Person, (i) each direct or
indirect Subsidiary of such Person, (ii) each other Person of which
such Person is a direct or indirect Subsidiary, and (iii) each other
direct or indirect Subsidiary of such other Person.
"Columbia" means the hospitals and ambulatory surgical
facilities owned by Columbia/HCA Healthcare, Inc.
"Competitive Enterprise" means any Person the activities,
products or services of which (A) are competitive with activities,
products or services of the Company or any of its Controlled Entities
in any state in which the Company is engaged or intends to engage
<PAGE> 9
9
in the same or a similar business during the one year period preceding
the Executive's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services,
including without limitation, the provision of anesthesia services,
pain management services, emergency room services, primary medical care
services, neonatology, perinatology and radiology services; (2) the
provision of Payor Services; (3) the provision of administrative
services for medical services and Payor Services, including without
limitation, quality assurance services, utilization management
services, billing services, recruitment services and medical management
information services; or (4) the provision of services or products of
any nature to Columbia.
"Controlled Entity" shall have the meaning ascribed thereto in
the Merger Agreement.
"Health Care Provider" means any physician, nurse, technician
or allied health care provider providing medical services on behalf of
the Company or any Controlled Entity on a full or part-time basis as an
independent contractor or consultant.
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs,
PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions,
hospitals, clinics, ambulatory surgery centers, Medicare intermediaries
and Medicaid intermediaries.
"Payor Services" means payor services in the area of managed
care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs,
HMOs, PSOs, capitation pools and other similar arrangements.
"Person" shall mean an individual, a corporation, an
association, a partnership, an estate, a trust, and any other entity or
organization.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which
fifty percent (50%) or more of the total voting power of shares of
capital stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof, or fifty percent (50%) or more of the equity interest therein,
is at the time owned or controlled, directly or indirectly, by any
Person or one or more of the other Subsidiaries of such Person or a
combination thereof.
(d) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period,
subject to Section 4, the Executive shall not devote any time to consulting,
lecturing or engaging in other self-employment or employment activities without
the prior written consent of the Company.
9. Business Opportunities. The Executive agrees, while he is employed
by the Company, to offer or otherwise make known or available to the Company or
any subsidiary, as directed by the Company and without additional compensation
or consideration, any business
<PAGE> 10
10
prospects, contracts or other business opportunities that he may discover, find,
develop or otherwise have available to him in any field in which the Company is
engaged, and further agrees that any such prospects, contracts or other business
opportunities shall be the property of the Company.
10. Representations and Warranties of Executive/Indemnification.
(a) The Executive represents and warrants to the Company (i)
that the Executive (A) is able to enter into and perform all duties under this
Agreement, and (B) is in good mental and, except as set forth on Exhibit B
hereto, physical health and does not suffer from any illness or disability which
could prevent him from fulfilling the Executive's responsibilities under this
Agreement; (ii) that the Executive is not a party to or bound by any agreement,
arrangement or understanding that would interfere with, hinder or conflict with
the performance of the Executive's duties hereunder, and (iii) that none of the
representations or warranties made by the Executive in this Agreement or in any
interviews, references, resumes or curricula vitae submitted to the Company or
in any insurance applications or any staff membership applications submitted to
any third party in connection with this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary in order to make the statements or provisions therein and in this
Agreement not misleading or incomplete.
(b) The Executive agrees to immediately notify the Company of
any fact or circumstance of which he becomes aware during the Term of
Employment, which in itself or with the passage of time and/or the combination
with other reasonably anticipated factors known to the Executive does render or
will render any of these representations and warranties to be untrue.
(c) The Company hereby agrees that it shall indemnify and hold
harmless the Executive to the fullest extent permitted by Delaware law from and
against any and all liabilities, costs, claims, and expenses, including all
costs and expenses incurred in defense of litigation (including attorneys'
fees), arising out of the employment of the Executive with the Company. Costs
and expenses incurred by the Executive in defense of such litigation (including
attorneys' fees) shall be paid by the Company in advance of the final
disposition of such litigation upon receipt by the Company of (a) a written
request, (b) appropriate documentation evidencing the incurrence, amount and
nature of the costs and expense for which payment is being sought, and (c) an
undertaking made by or on behalf of the Executive to repay the amounts so paid
if it shall ultimately be determined that the Executive is not entitled to be
indemnified by the Company under Delaware law. During the Term of Employment,
the Company shall maintain in effect, at its sole expense, directors' and
officers' liability insurance policies providing for coverage and reimbursement
amounts and policies that are customary and appropriate for companies of similar
size and nature to the Company and that cover claims (subject to customary
exceptions) arising from facts or events that occur at any time during the
period of the Executive's employment with the Company.
11. Confidentiality.
<PAGE> 11
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(a) The Executive acknowledges that as a result of the
Executive's employment with the Company, the Executive has and will necessarily
become informed of, and have access to, certain valuable and confidential
information of the Company, including, without limitation, trade secrets,
technical information, plans, lists of patients, data, records, fee schedules,
computer programs, manuals, processes, methods, intangible rights, contracts,
agreements, licenses, personnel information and the identity of health care
providers (collectively, the "Confidential Information"), and that the
Confidential Information, even though it may be contributed, developed or
acquired in whole or in part by the Executive, is the Company's exclusive
property to be held by the Executive in trust and solely for the Company's
benefit. Accordingly, except as required by law, by an order of a court having
jurisdiction or under subpoena from a government agency, the Executive shall
not, at any time, either during or subsequent to the Term of Employment, use,
reveal, report, publish, copy, transcribe, transfer or otherwise disclose to any
person, corporation or other entity, any of the Confidential Information without
the prior written consent of the Company, except to officers and employees of
the Company and other persons who are in a contractual or fiduciary relationship
with the Company and except for information which is or becomes of general
public knowledge from sources other than the Executive.
(b) Upon the termination of this Agreement, the Executive
shall promptly deliver to the Company all Company property and possessions
including all drawings, manuals, letters, notes, notebooks, reports, copies,
deliverable Confidential Information and all other materials relating to the
Company's business which are in the Executive's possession or control.
12. Substance Abuse Policy. It is the Company's policy that none of its
employees shall use or abuse any controlled substances at any time or be under
the influence of alcohol or be affected by the use of alcohol during the time
period required to perform their duties and obligations under any employment
agreements. Company and the Executive both acknowledge and agree that the
purpose of this policy is for the benefit of the Company, the Executive and the
individuals whom they serve.
In compliance with this policy, the Executive agrees to submit
to random drug testing immediately upon the Company's request in accordance with
practices and policies in effect from time to time for physician employees of
the Company. Testing may include, but shall not be limited to, the taking of
blood and urine samples and utilization of gas chromatography. Unless otherwise
provided in the practices and policies in effect from time to time for physician
employees of the Company, in the event that a positive test result is reached
indicating a violation of the Company's policy, the Executive may, at the
Executive's own expense and subject to the supervision and approval of the
Company of the manner and testing facilities utilized, elect to have a second
drug test performed on a second portion of the same sample. The Company may, in
its sole and absolute discretion, terminate the Executive for cause pursuant to
Section 7(b) of this Agreement in the event either: (a) a positive test result
is received in the initial drug test and the Executive fails to exercise the
Executive's option for a second test in the manner provided for in this Section
12 or in accordance with practices and policies in effect from time to time for
physician employees of the Company; or (b) positive test results are received
from both tests. In the event that the second test result is negative, the
Company may, at any time, retest the Executive pursuant to the terms of this
Section 12 and the practices and policies in effect from time to time for
physician employees of the Company.
<PAGE> 12
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13. Specific Performance; Severability. It is specifically understood
and agreed that any breach of the provisions of Sections 8, 9 and 11 hereof and
the obligations referred to and incorporated therein by the Executive is likely
to result in irreparable injury to the Company, that the remedy at law alone
will be an inadequate remedy for such breach and that, in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Executive through both temporary and
permanent injunctive relief, and through any other appropriate equitable relief,
without the necessity of showing or proving actual damages. In case any of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, including without limitation
geographic scope, duration or functional coverage, any such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had been limited or modified (consistent with its
general intent) to the extent necessary to make it valid, legal and enforceable,
or if it shall not be possible to so limit or modify such invalid, illegal or
unenforceable provision or part of a provision, this Agreement shall be
construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
14. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or mailed by certified or registered mail (return receipt
requested) as follows:
To the Company:
Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 200
Hollywood, FL 33021
Attn: General Counsel
(954) 964-2611
Fax: (954) 987-8359
With copies to:
Vestar Capital Partners III, L.P.
Att: Robert L. Rosner
245 Park Avenue
41st Floor
New York, NY 10167
(212) 351-1600
Fax: (212) 808-4922
and,
Brian D. Robbins, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
<PAGE> 13
13
New York, NY 10017
(212) 455-2000
Fax: (212) 455-2502
To the Executive:
Michael F. Schundler
2493 Poinciana Drive
Weston, FL 33326
(954) 349-7041
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Miscellaneous. This Agreement shall be governed by and construed
under the laws and solely in the courts of the State of Florida without regard
to the conflicts of law provisions thereof, and shall not be amended, modified
or discharged in whole or in part except by an agreement in writing signed by
each of the parties hereto. The failure of any of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder. This Agreement shall inure to the benefit of successors of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company, shall be binding upon the heirs, executors,
administrators and legal representatives of the Executive and may not be
assigned by the Executive. This Agreement supersedes all prior understandings
and agreements among the parties relating to the subject matter hereof
including, without limitation, the Prior Agreements. The Company may withhold
from any amounts payable under this Agreement such Federal, state and local
taxes as may be required to be withheld pursuant to applicable law or
regulation.
16. Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT,
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY
ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE
STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
FLORIDA IN BROWARD COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL
JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE
STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE
ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL
<PAGE> 14
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RIGHTS TO ANY TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal as of the date first set forth above.
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg, Pres.
-----------------------------
EXECUTIVE:
/s/ Michael F. Schundler
-------------------------
MICHAEL F. SCHUNDLER
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of March 24, 1999 (the "Agreement"),
between Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), and
Jay A. Martus (the "Executive").
PRELIMINARY STATEMENTS
WHEREAS, on the date hereof, Vestar/Calvary, Inc. ("Acquisition"),
Vestar/Calvary Holdings, Inc. ("Holdings") and the Company are entering into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
Acquisition will merge into the Company (the "Merger"), with the Company
constituting the surviving corporation;
WHEREAS, Acquisition and the Company desire that, effective upon the
purchase by Acquisition of shares of the Company's common stock pursuant to the
Offer (as defined in the Merger Agreement), the Company employ the Executive and
enter into an agreement embodying the terms of such employment and the Executive
desires to accept such employment with the Company and enter into such an
agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and for other good and valuable consideration, the parties agree as
follows:
AGREEMENT
1. Effectiveness of Agreement/Prior Agreements.
(a) Notwithstanding any other provision of this Agreement,
this Agreement shall constitute a binding obligation of the parties hereto as of
the date hereof but shall become effective only upon the date of Acquisition's
purchase of shares of the Company's common stock pursuant to the Offer (such
date being hereinafter referred to as the "Commencement Date"); provided,
however, that for this Agreement to continue to be effective after the ninetieth
day following the Merger, Holdings shall, within ninety (90) days following the
Merger, obtain shareholder approval intended to satisfy Section 280G(b)(5)(B) of
the Internal Revenue Code of 1986, as amended (the "Shareholder Approval"). If
the Shareholder Approval is not obtained or the Merger Agreement is terminated
for any reason without shares of the Company's common stock being purchased
pursuant to the Offer, this Agreement shall, at such time, be terminated without
further obligation or liability of either party.
(b) Effective as of the Commencement Date, this Agreement
shall supercede all prior agreements and understandings (including verbal
agreements) between the Executive and the Company and/or its affiliates
regarding the terms and conditions of Executive's employment with the Company
and its affiliates including, without limitation, the Executive Employment
Agreement dated as of January 1, 1995 with the Company (f/k/a SAMA Holdings,
Inc.) and Sheridan Healthcorp, Inc. (f/k/a Southeastern Anesthesia Management
Associates), as amended
<PAGE> 2
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(the "Prior Employment Agreement" and together with such other prior agreements
and understandings, collectively, the "Prior Agreements"); provided that this
Agreement shall not supercede the Executive's rights to expense reimbursement or
benefits under the Company's employee benefits plans, programs and arrangements.
It is expressly agreed that from and after the Commencement Date the Company and
its affiliates shall have no further obligations under, and the Executive shall
have no further rights under, the Prior Employment Agreement including, without
limitation, any severance, termination, or change of control related benefits.
2. Employment. Subject to the provisions of this Agreement, the Company
shall employ the Executive, and the Executive agrees that he will be so
employed, upon the terms and conditions hereinafter set forth.
3. Term of Employment. Subject to the provisions of this Agreement,
unless earlier terminated pursuant to Section 7, the term of Executive's
employment pursuant to this Agreement (the "Term of Employment") shall remain
effective until the fifth anniversary of the Commencement Date (the "Scheduled
Expiration Date"). Notwithstanding the preceding sentence, commencing with the
Scheduled Expiration Date and on each anniversary of the Scheduled Expiration
Date thereafter (each an "Extension Date"), the Term of Employment shall be
automatically extended for an additional one-year period, unless the Company or
the Executive provides the other party hereto six (6) months' prior written
notice before the next Extension Date that the Term of Employment shall not be
so extended. For the avoidance of doubt, the term "Term of Employment" shall
include any extension that becomes applicable pursuant to the preceding
sentence.
4. Duties.
(a) During the Term of Employment, beginning on the
Commencement Date the Executive (i) shall continue to serve as the Vice
President, Secretary and General Counsel of the Company or in a position
carrying an equivalent or more senior title, as reasonably determined by the
Board of Directors, (ii) shall perform such duties and responsibilities as may
be determined by the Board of Directors of the Company consistent with the
Executive's title and position as an executive officer of the Company pursuant
to the preceding clause (i), (iii) upon request of the Board of Directors of the
Company, shall serve as an officer and/or director of the Company and any of its
subsidiaries and (iv) shall render all services reasonably incident to the
foregoing. The Executive agrees to use the Executive's best efforts in, and
shall devote the Executive's full working time, attention, skill and energies
to, the advancement of the interests of the Company and/or its Subsidiaries and
the performance of the Executive's duties and responsibilities hereunder, except
for (x) vacation time and absence for sickness or similar disability and (y) to
the extent that it does not interfere with the performance of the Executive's
duties hereunder, (A) such reasonable time as may be devoted to service on the
boards of directors of other corporations and entities, subject to the
provisions of Section 8, on which the Executive currently serves and which are
disclosed on Exhibit A hereto or any other boards of directors on which the
Executive may serve in the future, subject to the consent of the Company's Board
of Directors (not to be unreasonably withheld), and the fulfillment of civic
responsibilities and (B) such reasonable time as may necessary from time to time
for personal financial matters.
<PAGE> 3
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(b) In performing the Executive's duties under this Agreement,
the Executive shall use reasonable good faith efforts to comply with and follow
all written policies, standards, rules and regulations established by the
Company from time to time and shall be bound by and comply with the terms and
conditions of other written agreements to which the Company is a party, or to
which it may become a party during the Term of Employment, that are applicable
to executive officers of the Company in their capacity as such and not in their
capacity as physicians, in any case under this Section 4(b), provided Executive
has knowledge of such policies, standards, rules, regulations or agreements, as
the case may be.
(c) During and subsequent to the Term of Employment, the
Executive agrees that the Executive shall immediately notify the Company of any
and all notices of claims made or threats thereof of which the Executive has
knowledge arising out of the Executive's services during or prior to the Term of
Employment as soon as the Executive becomes aware of this information and shall
cooperate in any investigation and in the defense of any claims made or threats
thereof.
(d) During and subsequent to the Term of Employment, the
Executive shall assign, account and pay to the Company all accounts receivable,
compensation and any other form of remuneration due from or paid by any source
other than the Company that is paid to the Executive and is attributable to
services he has rendered in the Executive's professional capacity on behalf of
the Company during the Term of Employment or sums which come into the
Executive's possession which are attributable to the services of other employees
of the Company on behalf of the Company.
5. Compensation.
(a) During the Term of Employment, the Company shall pay the
Executive as compensation for the performance of the Executive's duties under
this Agreement, a salary at an annual rate of $275,000 per annum from the
Commencement Date (as such base salary may be increased from time to time, the
"Base Salary"). Such salary shall be subject to such increases, if any (but not
decreases), as may be determined in the sole discretion of the compensation
committee of the Company's Board of Directors. Executive's salary shall be
subject to withholding under applicable law and shall be payable in periodic
installments in accordance with the Company's usual practice for its senior
executives, as in effect from time to time.
(b) During the Term of Employment, the Company shall maintain
an annual incentive compensation plan (the "Annual Bonus Plan") for its senior
executives in which the Executive shall be entitled to participate in accordance
with the terms thereof as in effect from time to time, at a level commensurate
with the Executive's position and duties with the Company. During the Term of
Employment, the Executive shall be eligible to receive an annual target bonus
equal to 25% of the Base Salary pursuant to the Annual Bonus Plan, based upon
the satisfaction of performance targets established by the Company's Board of
Directors in its sole discretion. It is the Company's intention that its Board
of Directors shall use its best commercial efforts to establish such performance
targets during the first 120 days of each fiscal year.
<PAGE> 4
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(c) Upon the occurrence of the Effective Time (as defined in
the Merger Agreement), the Company shall pay the Executive a cash bonus in the
amount of $245,000.
6. Benefits.
(a) During the Term of Employment, the Executive shall be
entitled to participate in any and all pension, profit sharing, medical, dental
and/or life insurance plans (collectively, the "Benefits") as may be in effect
from time to time for senior executives of the Company. Such participation shall
be subject to (i) the terms of the applicable plan documents, (ii) policies of
the Company generally applicable to senior executives and (iii) the discretion
of the Board of Directors of the Company or any administrative or other
committee provided for in or contemplated by such plans, including discretion
with respect to creation, maintenance and continuation of particular benefits,
plans and arrangements. Notwithstanding anything to the contrary contained
herein, the Executive shall at any time be entitled to at least those Benefits
that are equivalent in nature to those Benefits available at such time to the
employees or executives of the Company generally.
(b) The Company shall promptly reimburse the Executive for all
reasonable business expenses (including business travel and entertainment
expenses) incurred by the Executive during the Term of Employment in accordance
with the Company's practices for senior executives of the Company, as in effect
from time to time.
(c) During the Term of Employment, the Executive shall be
entitled to five (5) weeks paid vacation time during each calendar year the
Executive is employed under this Agreement (pro-rated for the final partial
calendar year of the Term of Employment). Vacation time shall be used within the
calendar in which they accrue, and vacation time shall only be used at the times
and intervals mutually agreed upon between Executive and the Company. The
Executive shall not be entitled to any additional compensation for unused
vacation days.
(d) During the Term of Employment, the Company shall pay the
Executive's professional license fees as reasonably requested by the Executive.
(e) During the Term of Employment, the Company shall reimburse
the Executive for dues and fees for the period of membership covering such Term
of Employment for any of the following professional associations which are paid
by the Executive during the Executive's Term of Employment: (i) American Bar
Association; (ii) American Health Lawyer's Association; and (iii) Broward Bar
Association. Reimbursement shall be made after Executive's presentation of an
expense statement and paid receipt and any other supporting information the
Company may reasonably request.
7. Termination of Employment of the Executive. Notwithstanding any
other provision of this Agreement, the provisions of this Section 7 shall
exclusively govern the Executive's rights under this Agreement upon a
termination of the Executive's employment with the Company and its affiliates.
Notwithstanding the foregoing, the Executive shall be entitled to receive such
expense reimbursement and benefits accrued under any plan, policy or program of
the Company in accordance with the terms of such plan, policy or program,
including, without limitation,
<PAGE> 5
5
reimbursement for reasonable business expenses incurred. During the Term of
Employment, this Agreement and the Executive's employment hereunder may be
terminated as follows under subparagraph (a) through (h) inclusive:
(a) At any time by the mutual consent of the Executive and the
Company. Upon termination pursuant to this Section 7(a), all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than obligations with respect to earned but
unpaid Base Salary.
(b) At any time for "cause" by the Company upon written notice
of termination to the Executive, which notice specifies in reasonable
detail the facts and circumstances claimed to give rise to the
Company's right to terminate the Executive's employment for cause. For
purposes of this Agreement, a termination shall be for "cause" if the
Board of Directors of the Company reasonably determines that:
(i) the Executive has committed an act of fraud,
embezzlement, misappropriation or breach of fiduciary duty
against the Company or its affiliates or felony involving the
business, assets or customers or clients of the Company or its
affiliates or has been convicted by a court of competent
jurisdiction or has plead guilty or nolo contendere to any
other felony; or
(ii) the Executive has committed a material breach of
any of the covenants, terms or provisions of Sections 8, 9 or
11 hereof; or
(iii) the Executive substantially has failed to
perform the Executive's duties hereunder, including by
committing a material breach of any of the covenants, terms or
provisions hereof (other than pursuant to Sections 8, 9, or
11), which failure or breach has not been remedied within a
reasonable time specified by the Company that is not less than
thirty (30) days after delivery to the Executive by the
Company of written notice thereof; or
(iv) the Executive has breached the Executive's
obligation contained in Section 12 of this Agreement.
Upon termination for cause as provided in this Section 7(b),
(A) all obligations of the Company under this Agreement thereupon
immediately shall terminate, other than any obligations with respect to
earned but unpaid Base Salary, and (B) the Company shall have any and
all rights and remedies under this Agreement and applicable law.
(c) Upon the Executive's death or upon the Executive's
permanent disability (as defined below) continuing for a period of one
hundred eighty (180) days. Upon termination in the event of death or
permanent disability as provided in this Section 7(c), such termination
will be treated as a termination by the Company without Cause and the
rights and obligations of the parties shall be as set forth in Section
7(e), provided that in the case of the death of the Executive, any
payments shall be made to the Executive's estate. As used herein, the
term "permanent disability" or "permanently disabled" is
<PAGE> 6
6
hereby defined as the inability of the Executive, by reason of injury,
illness or other similar cause, to perform a major part of the duties
and responsibilities which the Executive had been performing pursuant
to this Agreement prior to the date of disability in connection with
the conduct of the business and affairs of the Company.
(d) At any time by the Executive upon ninety (90) days' prior
written notice to the Company. Upon termination by the Executive as
provided in this Section 7(d), all obligations of the Company under
this Agreement thereupon immediately shall terminate, other than any
obligations with respect to the earned but unpaid Base Salary and any
accrued but unpaid incentive bonus in accordance with Section 5(b)
hereof for any previously completed fiscal year.
(e) At any time without "cause" (as defined in Section 7(b))
by the Company upon written notice to the Executive of not less than
thirty (30) days. In the event of termination of the Executive by the
Company pursuant to this Section 7(e), the Company shall, subject to
the Executive's continued compliance with the provisions of Section 8,
(i) pay to the Executive an amount equal to the Executive's Base Salary
according to the terms of Section 5(a) hereof, in equal installments
over the 12 months following the termination of employment pursuant to
the Company's payroll practices, (ii) continue the Executive's
benefits, car allowance and reimbursements as provided in Section 6
hereof from the effective date of termination through the date that is
twelve (12) months from the date of such termination, (iii) pay to the
Executive the Executive's pro rata portion (based on the number of days
the Executive is employed during the applicable year as compared to 365
days) of the bonus that the Executive would have been eligible to
receive pursuant to Section 5(b) hereof if he had been employed
pursuant to this Agreement for the whole year based upon the Company's
actual financial performance for the applicable year as measured
against the performance objectives for such year, determined and
calculated in accordance with the terms of the Annual Bonus Plan (the
"Pro-Rata Bonus"), payable when bonuses are generally paid to the
Company's senior executives and (iv) any accrued but unpaid incentive
bonus in accordance with Section 5(b) for any previously completed
fiscal year. Notwithstanding the foregoing provisions of this Section
7(e), if the Executive terminates the Executive's employment pursuant
to Section 7(f) following any reduction in the Base Salary, the Base
Salary amount applicable under this Section 7(e) shall be the amount in
effect prior to any reduction thereof. Upon termination by the Company
without cause as provided in this Section 7(e), except for the
compensation and benefits expressly provided in this Section 7(e), all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to earned but
unpaid Base Salary.
(f) Upon written notice by the Executive upon the continuation
of any of the following (without the Executive's written consent) after
written notice (the "Good Reason Notice") by the Executive to the
Company describing in reasonable detail the occurrence of one or more
of the following events and the failure by the Company to remedy such
event(s) within thirty (30) days after receipt of the Good Reason
Notice: (i) the Company has failed to pay the Executive the Base Salary
(or any installment thereof) provided for in Section 5(a) or (if
applicable) the annual incentive bonus, if any, payable
<PAGE> 7
7
under Section 5(b) upon such date as payment is due in accordance with
Section 5(a) or (if applicable) Section 5(b), (ii) the Company fails to
make available to the Executive any benefit plan or compensation plan
(including any pension, profit sharing, life insurance, health,
accidental death or dismemberment or disability plan) that has been
made available generally to the senior executives of the Company
(subject to applicable eligibility and waiting periods applicable to
senior executives generally) or reduces the Benefits to which the
Executive is entitled so that they are not at least equivalent in
nature to those Benefits available at such time to the employees or
executives of the Company generally, provided that nothing in this
Section 7(f) shall be construed to mean that the Company shall be
constrained in any manner from amending or eliminating any benefit or
compensation plan as such is applied to the Executive and the other
senior executives of the Company generally, (iii) the principal offices
of the Company are moved to a location more than 30 miles from the
Company's current headquarters in Broward County in the State of
Florida, or (iv) the Company has substantially failed to perform any of
its obligations hereunder, including by committing a material breach of
any of the covenants, terms or provisions hereof, by a demotion in
Executive's titles from those contemplated by this Agreement or by
assigning to the Executive duties representing a diminution from those
contemplated by this Agreement. The Executive shall have no right of
termination under this Section 7(f) in the event the relevant default
described in the Good Reason Notice is cured within the 30 day period
following the Company's receipt of the Good Reason Notice. In the event
of the Executive's termination of employment pursuant to this Section
7(f), such termination shall be treated for purposes of this Agreement
as a termination by the Company without "cause" and the provisions of
Section 7(e) shall apply.
(g) Upon the expiration of the Term of Employment due to the
Executive's election not to extend the Term of Employment pursuant to
Section 3. Upon termination of the Term of Employment by the Executive
as provided in this Section 7(g), unless the Executive's employment is
earlier terminated pursuant to paragraphs (a) through (f) of this
Section 7, the Executive's termination of employment hereunder (whether
or not the Executive continues as an employee of the Company
thereafter) shall be deemed to occur on the close of business on the
day immediately preceding the next scheduled Extension Date and all
obligations of the Company under this Agreement thereupon immediately
shall terminate, other than any obligations with respect to the earned
but unpaid Base Salary, any accrued but unpaid incentive bonus in
accordance with Section 5(b) for any previously completed fiscal year
and the Pro-Rata Bonus for the year in which such termination occurs.
(h) Upon the expiration of the Term of Employment due to the
Company's election not to extend the Term of Employment pursuant to
Section 3. Upon termination of the Term of Employment by the Company as
provided in this Section 7(h), unless the Executive's employment is
earlier terminated pursuant to paragraphs (a) through (f) of this
Section 7, the Executive's termination of employment hereunder (whether
or not the Executive continues as an employee of the Company
thereafter) shall be deemed to occur on the close of business on the
day immediately preceding the next scheduled Extension Date and all
obligations of the Company under this Agreement thereupon immediately
<PAGE> 8
8
shall terminate, other than any obligations with respect to earned but
unpaid Base Salary, any accrued but unpaid incentive bonus in
accordance with Section 5(b) for any previously completed fiscal year
and the Pro-Rata Bonus for the year in which such termination occurs.
In addition, the Company shall, subject to the Executive's continued
compliance with the provisions of Section 8, pay to the Executive an
amount equal to the Executive's annual Base Salary according to the
terms of Section 5(a) hereof, in equal installments over the 12 months
following the termination of employment pursuant to the Company's
payroll practices.
In the event of any termination of this Agreement as provided in this
Section 7, the Executive shall immediately resign from, and surrender, all
medical staff and other privileges ("Privileges"), at any hospital, ambulatory
surgical center or other facility where the Company provides services and
Executive waives any and all due claims of any kind whatsoever, including due
process claims, the Executive or the Executive's estate may have against the
Company and all other parties with respect to the termination of the Executive's
Privileges.
Unless the Company and the Executive otherwise agree in writing,
continuation of the Executive's employment with the Company beyond the
expiration or termination of the Term of Employment shall be deemed an
employment at will and shall not be deemed to extend any of the provisions of
this Agreement and the Executive's employment may thereafter be terminated at
will by either the Executive or the Company.
8. Non-Competition.
(a) Except as provided below, during the Term of Employment
and for the Non-Competition Period, the Executive shall not, without the express
written consent of the Company, directly or indirectly, engage in any activity
which is, or participate or invest in or assist (whether as owner, part-owner,
stockholder, partner, director, officer, trustee, employee, agent, independent
contractor or consultant, or in any other capacity) any Competitive Enterprise,
except that the Executive may make passive investments in a Competitive
Enterprise the shares of which are publicly traded if such investment
constitutes less than one percent of the outstanding equity of such enterprise.
Without implied limitation, the forgoing covenant shall include hiring or
attempting to hire for or on behalf of any such Competitive Enterprise any
officer or other employee of the Company or any Subsidiary of the Company or any
Controlled Entity, encouraging any officer, Health Care Provider or employee to
terminate his or her relationship or employment with the Company or any
Subsidiary of the Company or Controlled Entity, soliciting for or on behalf of
any such Competitive Enterprise any client or customer (including any Medical
Customer) of the Company or any Subsidiary of the Company or any Controlled
Entity, and diverting to any Person any client or business opportunity of the
Company, or any Subsidiary of the Company or Controlled Entity. Notwithstanding
anything to the contrary contained herein, nothing in this Section 8 shall
limit, or otherwise restrict, the Executive from working for a law firm during
the Non-Competition Period provided he has no conflict of interest from his
prior representation of or employment by the Company.
(b) The term "Non-Competition Period" shall mean the period
commencing on the last day of the Term of Employment and ending on the first
anniversary of the last day of the
<PAGE> 9
9
Term of Employment or, in the event the Executive fails to commence employment
with the Company as of the Commencement Date, until the first anniversary of the
Commencement Date.
(c) For purposes of this Section 8:
"Affiliate" shall mean, as to any Person, (i) each direct or
indirect Subsidiary of such Person, (ii) each other Person of which
such Person is a direct or indirect Subsidiary, and (iii) each other
direct or indirect Subsidiary of such other Person.
"Columbia" means the hospitals and ambulatory surgical
facilities owned by Columbia/HCA Healthcare, Inc.
"Competitive Enterprise" means any Person the activities,
products or services of which (A) are competitive with activities,
products or services of the Company or any of its Controlled Entities
in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Executive's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services,
including without limitation, the provision of anesthesia services,
pain management services, emergency room services, primary medical care
services, neonatology, perinatology and radiology services; (2) the
provision of Payor Services; (3) the provision of administrative
services for medical services and Payor Services, including without
limitation, quality assurance services, utilization management
services, billing services, recruitment services and medical management
information services; or (4) the provision of services or products of
any nature to Columbia.
"Controlled Entity" shall have the meaning ascribed thereto in
the Merger Agreement.
"Health Care Provider" means any physician, nurse, technician
or allied health care provider providing medical services on behalf of
the Company or any Controlled Entity on a full or part-time basis as an
independent contractor or consultant.
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs,
PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions,
hospitals, clinics, ambulatory surgery centers, Medicare intermediaries
and Medicaid intermediaries.
"Payor Services" means payor services in the area of managed
care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs,
HMOs, PSOs, capitation pools and other similar arrangements.
"Person" shall mean an individual, a corporation, an
association, a partnership, an estate, a trust, and any other entity or
organization.
<PAGE> 10
10
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which
fifty percent (50%) or more of the total voting power of shares of
capital stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof, or fifty percent (50%) or more of the equity interest therein,
is at the time owned or controlled, directly or indirectly, by any
Person or one or more of the other Subsidiaries of such Person or a
combination thereof.
(d) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period,
subject to Section 4, the Executive shall not devote any time to consulting,
lecturing or engaging in other self-employment or employment activities without
the prior written consent of the Company.
9. Business Opportunities. The Executive agrees, while he is employed
by the Company, to offer or otherwise make known or available to the Company or
any subsidiary, as directed by the Company and without additional compensation
or consideration, any business prospects, contracts or other business
opportunities that he may discover, find, develop or otherwise have available to
him in any field in which the Company is engaged, and further agrees that any
such prospects, contracts or other business opportunities shall be the property
of the Company.
10. Representations and Warranties of Executive/Indemnification.
(a) The Executive represents and warrants to the Company (i)
that the Executive (A) is able to enter into and perform all duties under this
Agreement, and (B) is in good mental and, except as set forth on Exhibit B
hereto, physical health and does not suffer from any illness or disability which
could prevent him from fulfilling the Executive's responsibilities under this
Agreement; (ii) that the Executive is not a party to or bound by any agreement,
arrangement or understanding that would interfere with, hinder or conflict with
the performance of the Executive's duties hereunder, and (iii) that none of the
representations or warranties made by the Executive in this Agreement or in any
interviews, references, resumes or curricula vitae submitted to the Company or
in any insurance applications or any staff membership applications submitted to
any third party in connection with this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary in order to make the statements or provisions therein and in this
Agreement not misleading or incomplete.
(b) The Executive agrees to immediately notify the Company of
any fact or circumstance of which he becomes aware during the Term of
Employment, which in itself or with the passage of time and/or the combination
with other reasonably anticipated factors known to the Executive does render or
will render any of these representations and warranties to be untrue.
(c) The Company hereby agrees that it shall indemnify and hold
harmless the Executive to the fullest extent permitted by Delaware law from and
against any and all liabilities, costs, claims, and expenses, including all
costs and expenses incurred in defense of litigation
<PAGE> 11
11
(including attorneys' fees), arising out of the employment of the Executive with
the Company. Costs and expenses incurred by the Executive in defense of such
litigation (including attorneys' fees) shall be paid by the Company in advance
of the final disposition of such litigation upon receipt by the Company of (a) a
written request, (b) appropriate documentation evidencing the incurrence, amount
and nature of the costs and expense for which payment is being sought, and (c)
an undertaking made by or on behalf of the Executive to repay the amounts so
paid if it shall ultimately be determined that the Executive is not entitled to
be indemnified by the Company under Delaware law. During the Term of Employment,
the Company shall maintain in effect, at its sole expense, directors' and
officers' liability insurance policies providing for coverage and reimbursement
amounts and policies that are customary and appropriate for companies of similar
size and nature to the Company and that cover claims (subject to customary
exceptions) arising from facts or events that occur at any time during the
period of the Executive's employment with the Company.
11. Confidentiality.
(a) The Executive acknowledges that as a result of the
Executive's employment with the Company, the Executive has and will necessarily
become informed of, and have access to, certain valuable and confidential
information of the Company, including, without limitation, trade secrets,
technical information, plans, lists of patients, data, records, fee schedules,
computer programs, manuals, processes, methods, intangible rights, contracts,
agreements, licenses, personnel information and the identity of health care
providers (collectively, the "Confidential Information"), and that the
Confidential Information, even though it may be contributed, developed or
acquired in whole or in part by the Executive, is the Company's exclusive
property to be held by the Executive in trust and solely for the Company's
benefit. Accordingly, except as required by law, by an order of a court having
jurisdiction or under subpoena from a government agency, the Executive shall
not, at any time, either during or subsequent to the Term of Employment, use,
reveal, report, publish, copy, transcribe, transfer or otherwise disclose to any
person, corporation or other entity, any of the Confidential Information without
the prior written consent of the Company, except to officers and employees of
the Company and other persons who are in a contractual or fiduciary relationship
with the Company and except for information which is or becomes of general
public knowledge from sources other than the Executive.
(b) Upon the termination of this Agreement, the Executive
shall promptly deliver to the Company all Company property and possessions
including all drawings, manuals, letters, notes, notebooks, reports, copies,
deliverable Confidential Information and all other materials relating to the
Company's business which are in the Executive's possession or control.
12. Substance Abuse Policy. It is the Company's policy that none of its
employees shall use or abuse any controlled substances at any time or be under
the influence of alcohol or be affected by the use of alcohol during the time
period required to perform their duties and obligations under any employment
agreements. Company and the Executive both acknowledge and agree that the
purpose of this policy is for the benefit of the Company, the Executive and the
individuals whom they serve.
<PAGE> 12
12
In compliance with this policy, the Executive agrees to submit
to random drug testing immediately upon the Company's request in accordance with
practices and policies in effect from time to time for physician employees of
the Company. Testing may include, but shall not be limited to, the taking of
blood and urine samples and utilization of gas chromatography. Unless otherwise
provided in the practices and policies in effect from time to time for physician
employees of the Company, in the event that a positive test result is reached
indicating a violation of the Company's policy, the Executive may, at the
Executive's own expense and subject to the supervision and approval of the
Company of the manner and testing facilities utilized, elect to have a second
drug test performed on a second portion of the same sample. The Company may, in
its sole and absolute discretion, terminate the Executive for cause pursuant to
Section 7(b) of this Agreement in the event either: (a) a positive test result
is received in the initial drug test and the Executive fails to exercise the
Executive's option for a second test in the manner provided for in this Section
12 or in accordance with practices and policies in effect from time to time for
physician employees of the Company; or (b) positive test results are received
from both tests. In the event that the second test result is negative, the
Company may, at any time, retest the Executive pursuant to the terms of this
Section 12 and the practices and policies in effect from time to time for
physician employees of the Company.
13. Specific Performance; Severability. It is specifically understood
and agreed that any breach of the provisions of Sections 8, 9 and 11 hereof and
the obligations referred to and incorporated therein by the Executive is likely
to result in irreparable injury to the Company, that the remedy at law alone
will be an inadequate remedy for such breach and that, in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Executive through both temporary and
permanent injunctive relief, and through any other appropriate equitable relief,
without the necessity of showing or proving actual damages. In case any of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, including without limitation
geographic scope, duration or functional coverage, any such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had been limited or modified (consistent with its
general intent) to the extent necessary to make it valid, legal and enforceable,
or if it shall not be possible to so limit or modify such invalid, illegal or
unenforceable provision or part of a provision, this Agreement shall be
construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
14. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or mailed by certified or registered mail (return receipt
requested) as follows:
To the Company:
Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 200
Hollywood, FL 33021
Attn: Chief Executive Officer
(954) 964-2611
<PAGE> 13
13
Fax: (954) 987-8359
With copies to:
Vestar Capital Partners III, L.P.
Att: Robert L. Rosner
245 Park Avenue
41st Floor
New York, NY 10167
(212) 351-1600
Fax: (212) 808-4922
and,
Brian D. Robbins, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
(212) 455-2000
Fax: (212) 455-2502
To the Executive:
Jay A. Martus
227 Landings Boulevard
Weston, FL 33327
(954) 389-7698
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Miscellaneous. This Agreement shall be governed by and construed
under the laws and solely in the courts of the State of Florida without regard
to the conflicts of law provisions thereof, and shall not be amended, modified
or discharged in whole or in part except by an agreement in writing signed by
each of the parties hereto. The failure of any of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder. This Agreement shall inure to the benefit of successors of the
Company by way of merger, consolidation or transfer of all or substantially all
of the assets of the Company, shall be binding upon the heirs, executors,
administrators and legal representatives of the Executive and may not be
assigned by the Executive. This Agreement supersedes all prior understandings
and agreements among the parties relating to the subject matter hereof
including, without limitation, the Prior Agreements. The Company may withhold
from any amounts
<PAGE> 14
14
payable under this Agreement such Federal, state and local taxes as may be
required to be withheld pursuant to applicable law or regulation.
16. Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT,
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY
ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE
STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
FLORIDA IN BROWARD COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL
JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE
STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE
ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY
TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first set forth above.
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg, Pres.
------------------------------
EXECUTIVE:
/s/ Jay A. Martus
------------------------------
JAY A. MARTUS
<PAGE> 1
SUBSCRIPTION AND TENDER AGREEMENT
SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999
(this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware
corporation (the "Company"), and the individual named on the signature page
hereto (the "Stockholder").
WHEREAS, concurrently herewith, the Company, Vestar/Calvary,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation
("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the
date hereof (the "Merger Agreement") pursuant to which, among other things,
Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $.01 per share, and Class A Common
Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common
Stock") and (y) to merge (the "Merger") into Sheridan;
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and make the Offer, the Company and Acquisition have required
the Stockholder and certain other Management Investors referred to below to
enter into this Agreement and the other Stockholder Documents referred to in the
Merger Agreement;
WHEREAS, the Stockholder has agreed, among other things, to
tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan
Common Stock owned by him as of the date hereof and all shares of Sheridan
Common Stock, if any, acquired by him after the date hereof and prior to the
expiration of the Offer (the "Tender Shares");
WHEREAS, on the terms and subject to the conditions hereof,
the Stockholder desires to subscribe for and acquire from the Company, and the
Company desires to issue and sell to the Stockholder, the number of shares of
common stock, par value $.01 per share, of the Company ("Common Stock") set
forth on Schedule I hereto, as hereinafter set forth;
WHEREAS, this Agreement is one of several agreements being
entered into by the Company on or after the date hereof with certain persons who
are or will be key employees of the Company or one of its subsidiaries
(collectively with the Stockholder, the "Management Investors");
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Subscription for and Purchase of Common Stock.
1.1. Purchase of Common Stock. Pursuant to the terms and
subject to the conditions set forth in this Agreement, the Stockholder hereby
subscribes for and agrees to purchase, and the Company hereby agrees to issue
and sell to the Stockholder, on the Closing
<PAGE> 2
2
Date (as defined in Section 1.3) the number of shares of Common Stock set forth
on Schedule I hereto at a price per share and for the aggregate amount in cash
(the "Purchase Price") set forth on Schedule I hereto.
1.2. Sales of Common Stock to Employees Only. Notwithstanding
anything in this Agreement to the contrary, the Company shall have no obligation
to issue, sell or deliver any shares of Common Stock to any person (i) who is
not a full-time employee of, or consultant to, the Company or any of its
subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in
which such issuance, sale or delivery to such person would constitute a
violation of the securities or "blue sky" laws of such jurisdiction.
1.3. The Closing. The closing (the "Closing") of the purchase
of Common Stock hereunder shall take place on the date (the "Closing Date") that
Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and
at such time as the Company shall direct on at least one business day's prior
notice to the Stockholder. The Closing shall occur at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such
other place as the parties may mutually agree. At the Closing, the Stockholder
(or the Stockholder's representative) shall deliver to the Company the Purchase
Price, payable by delivery of the amount set forth on Schedule I hereto, by
delivery of a certified check or by wire transfer in immediately available
funds.
1.4. Conditions to the Obligations of the Parties. (a) The
obligations of the Company under this Section 1 shall be subject to the
conditions that (i) the Stockholder shall have executed and delivered the
Stockholders Agreement dated as of the date hereof among the Company and its
stockholders party thereto in substantially the form attached hereto as Exhibit
A (the "Stockholders Agreement"), (ii) the representations and warranties of the
Stockholder in Section 2 of this Agreement shall be true and correct as of the
Closing Date in all material respects and (iii) the Stockholder shall not have
breached his obligations under Section 3 hereof.
(b) The obligations of the Stockholder under this Section 1
shall be subject to the conditions that (i) the Company shall have executed and
delivered the Stockholders Agreement and (ii) the representations and warranties
of the Company in Section 1.5 of this Agreement shall be true and correct as of
the Closing Date in all material respects.
1.5. Representations and Warranties of the Company. The
Company represents and warrants to the Stockholder as follows:
(a) the Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to execute and deliver this Agreement and the
Stockholders Agreement and to perform its obligations hereunder and thereunder.
The execution, delivery and performance by the Company of this Agreement and the
Stockholders Agreement has been duly authorized by all necessary corporate and
legal action by the Company, and no other corporate proceeding by the Company is
necessary for the execution, delivery and performance by the Company of this
Agreement or the Stockholders Agreement. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Company and, assuming
they are duly executed and delivered by the Stockholder,
<PAGE> 3
3
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
(b) the Common Stock to be issued to the Stockholder pursuant
to this Agreement, when issued and delivered in accordance with the terms
hereof, will be duly and validly issued and, upon receipt by the Company of the
Purchase Price therefor, will be fully paid and nonassessable with no personal
liability attached to the ownership thereof and will not be subject to any
preemptive rights under the Delaware General Corporation Law; and
(c) the execution, delivery and performance by the Company of
this Agreement and the Stockholders Agreement will not (i) conflict with the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or (iii) conflict with or violate any law, rule,
regulation, ordinance, writ, injunction, judgment or decree applicable to the
Company or any of its subsidiaries or by which any of their assets may be bound
or affected.
2. Representations, Warranties and Covenants of the Stockholder.
2.1. Residence and Competency; Power; Enforceability;
Noncontravention. The Stockholder is competent to and has sufficient capacity to
execute and deliver this Agreement and the Stockholders Agreement and to perform
his obligations hereunder and thereunder. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Stockholder.
Assuming the due execution and delivery of this Agreement and
the Stockholders Agreement by the Company, this Agreement and the Stockholders
Agreement constitute valid and binding obligations of the Stockholder,
enforceable against the Stockholder in accordance with their terms.
The execution, delivery and performance of this Agreement and
the Stockholders Agreement by the Stockholder will not (i) conflict with or
violate any law, rule, regulation, ordinance, writ, injunction, judgment or
decree applicable to the Stockholder or by which any of his assets may be bound
or affected or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Stockholder is a party or by which the Stockholder is bound.
2.2. Investment Intention; No Resales. The Stockholder hereby
represents and warrants that he is acquiring the Common Stock for investment
solely for his own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof. The Stockholder agrees and
acknowledges that he will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock,
or solicit any offers to purchase or otherwise acquire or pledge any shares of
Common Stock, unless such offer, transfer, sale, assignment, pledge,
hypothecation or other disposition complies with the provisions hereof and of
the Stockholders Agreement.
<PAGE> 4
4
2.3. Common Stock Unregistered. The Stockholder acknowledges
and represents that he has been advised by the Company that:
(a) the offer and sale of the Common Stock have not been and
will not be registered under the Securities Act;
(b) the Common Stock must be held indefinitely and the
Stockholder must continue to bear the economic risk of the investment in the
Common Stock unless the offer and sale of such Common Stock is subsequently
registered under the Securities Act and all applicable state securities laws or
an exemption from such registration is available;
(c) there is no established market for the Common Stock and it
is not anticipated that there will be any public market for the Common Stock in
the foreseeable future;
(d) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities of the Company,
and, except as set forth in the Stockholders Agreement, the Company has made no
covenant to make such Rule available;
(e) when and if shares of Common Stock may be disposed of
without registration under the Securities Act in reliance on Rule 144, such
disposition can be made only in limited amounts in accordance with the terms and
conditions of such Rule;
(f) if the Rule 144 exemption is not available, public offer
or sale of Common Stock without registration will require compliance with some
other exemption under the Securities Act;
(g) if any shares of Common Stock are at any time disposed of
in accordance with Rule 144, the Stockholder will deliver to the Company at or
prior to the time of such disposition an executed Form 144 (if required by Rule
144) and such other documentation as the Company may reasonably require in
connection with such sale;
(h) a restrictive legend in the form set forth in the
Stockholders Agreement shall be placed on the certificates representing Common
Stock; and
(i) a notation shall be made in the appropriate records of the
Company indicating that the Common Stock is subject to restrictions on transfer
and, if the Company should at some time in the future engage the services of a
securities transfer agent, appropriate stop-transfer instructions will be issued
to such transfer agent with respect to the Common Stock.
2.4. Additional Investment Representations. The Stockholder
represents and warrants that:
(a) the Stockholder's financial situation is such that he can
afford to bear the economic risk of holding the Common Stock for an indefinite
period of time, has adequate means for providing for his current needs and
personal contingencies, and can afford to suffer a complete loss of his
investment in the Common Stock;
<PAGE> 5
5
(b) the Stockholder's knowledge and experience in financial
and business matters are such that he is capable of evaluating the merits and
risks of the investment in the Common Stock, as contemplated by this Agreement;
(c) the Stockholder understands that the Common Stock is a
speculative investment which involves a high degree of risk of loss of his
investment therein, there are substantial restrictions on the transferability of
the Common Stock and, on the Closing Date and for an indefinite period following
the Closing, there will be no public market for the Common Stock and,
accordingly, it may not be possible for the Stockholder to liquidate his
investment in case of emergency, if at all;
(d) the terms of the Stockholders Agreement provide that in
the event that the Stockholder ceases to be an employee of Sheridan, the
Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their
designated affiliates have the right to repurchase the Common Stock at a price
which may, in certain circumstances, be less than the fair market value of such
stock;
(e) the Stockholder understands and has taken cognizance of
all the risk factors related to the purchase of Common Stock and, other than as
set forth in this Agreement, no representations or warranties have been made to
the Stockholder or his representatives concerning the Common Stock or the
Company, its subsidiaries or their prospects or other matters;
(f) in making his decision to purchase the Common Stock hereby
subscribed for, the Stockholder has relied upon independent investigations made
by him and, to the extent believed by the Stockholder to be appropriate, his
representatives, including his own professional, financial, tax and other
advisors;
(g) the Stockholder has been given the opportunity to examine
all documents and to ask questions of, and to receive answers from, the Company
and its representatives concerning the Company and its subsidiaries and the
terms and conditions of the purchase of the Common Stock and to obtain any
additional information, in each case as the Stockholder or his representatives
deems necessary;
(h) all information which the Stockholder has provided to the
Company and its representatives concerning the Stockholder and his financial
position is complete and correct as of the date of this Agreement; and
(i) the Stockholder is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act.
3. Agreements Relating to Tender Shares.
3.1. Agreement to Tender. The Stockholder hereby agrees to
validly tender pursuant to the Offer and not withdraw from the Offer all Tender
Shares; provided that the Merger Agreement has not been terminated.
3.2. Voting of Tender Shares. The Stockholder hereby agrees,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, to vote all Tender
<PAGE> 6
6
Shares (a) in favor of the adoption of the Merger Agreement and the approval of
the transactions contemplated thereby and (b) against any action or agreement
that would result in a breach of any representation, warranty, covenant or
agreement of the Company contained in the Merger Agreement or would impede,
interfere with, delay or prevent the consummation of the Merger or the purchase
of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall
not, so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, purport to vote (or execute a written consent with respect
to) Tender Shares other than in accordance with this Agreement or grant any
proxy or power of attorney with respect to Tender Shares, deposit any Tender
Shares into a voting trust, or enter into any agreement, arrangement or
understanding with any person (other than this Agreement), directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of Tender Shares, or agree to do any of the foregoing.
3.3. Disposition of Tender Shares. The Stockholder shall not,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise
encumber, any Tender Shares after the date hereof (except to tender Tender
Shares to Acquisition pursuant to the Offer), or agree to do any of the
foregoing.
3.4. Stop Transfer Order. The Stockholder hereby agrees to
cause Sheridan's transfer agent to be notified that there is a stop transfer
order (except to tender Tender Shares to Acquisition pursuant to the Offer) with
respect to all Tender Shares so long as the Stockholder is required to tender
Tender Shares pursuant to Section 3.1 hereof.
4. Options.
4.1. Adoption of Option Plan. Immediately following the
Effective Time (as defined in the Merger Agreement), the Company shall duly
adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially
the form attached hereto as Exhibit B.
4.2. Grant of Performance Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Performance Option Agreement in substantially the form attached hereto as
Exhibit C pursuant to which the Stockholder will be granted performance options
to purchase the number of shares of Common Stock set forth opposite his name on
Schedule II hereto at an exercise price equal to the per share price paid by the
Stockholder for Common Stock pursuant hereto. Following such due execution and
delivery thereof, the Performance Option Agreement shall constitute a valid and
binding obligation of each of the Company and the Stockholder, enforceable
against each of the Company and the Stockholder in accordance with its terms.
4.3. Grant of Time Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Time Option Agreement in substantially the form attached hereto as Exhibit D
pursuant to which the Stockholder will be granted time options to purchase the
number of shares of Common Stock set forth opposite his name on Schedule II
hereto at an exercise price equal to the per share price paid by the Stockholder
for Common Stock pursuant hereto. Following such due execution and delivery
thereof, the Time Option Agreement shall constitute a valid and binding
obligation of each of the Company and the Stockholder, enforceable against each
of the Company and the Stockholder in accordance with its terms.
<PAGE> 7
7
5. Miscellaneous.
5.1. Recapitalizations, Exchanges, Etc., Affecting Common
Stock. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to Common Stock, to any and all shares of capital
stock of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution for Common Stock, by reason of
any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Upon the occurrence of any of such events, amounts hereunder shall be
appropriately adjusted, in good faith, by the Board of Directors of the Company.
5.2. Stockholder's Employment by the Company. Nothing
contained in this Agreement shall be deemed to obligate the Company or any
subsidiary of the Company to employ the Stockholder in any capacity whatsoever
or to prohibit or restrict the Company (or any such subsidiary) from terminating
the employment, if any, of the Stockholder at any time or for any reason
whatsoever, with or without Cause (as defined in the Stockholders Agreement).
5.3. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. No assignment of any of
the rights or obligations of the Stockholder shall be permitted except as
expressly contemplated hereby; any purported assignment in violation of this
provision shall be null and void ab initio.
5.4. Amendment; Waiver. This Agreement may be amended only by
a written instrument signed by the parties hereto. No waiver by either party
hereto of any of the provisions hereof shall be effective unless set forth in a
writing executed by the party so waiving.
5.5. Governing Law. This Agreement shall be governed by and
construed in all respects under the laws of the State of New York. Any action to
enforce which arises out of or in any way relates to any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located
within the State of New York as provided by law; and the parties consent to the
jurisdiction of such court or courts located within the State of New York and to
service of process by registered mail, return receipt requested, or by any other
manner provided by New York law.
5.6. Notices. Any notices or communications permitted or
required hereunder shall be deemed sufficiently given if hand-delivered, or sent
by (x) registered or certified mail return receipt requested, (y) telecopy or
other electronic transmission service (to the extent receipt is confirmed) or
(z) by overnight courier, in each case to the parties at their respective
addresses and telecopy numbers set forth below, or to such other address of
which any party may notify the other party in writing.
<PAGE> 8
8
(a) If to the Company, to it at the following address:
Vestar/Calvary Holdings, Inc.
c/o Vestar Capital Partners
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Telecopy: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Telecopy: (212) 455-2502
(b) If to the Stockholder, to him at his address or telecopy
number as shown on the stock register of the Company.
5.7. Integration. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
5.8. Counterparts. This Agreement may be executed in two or
more counterparts, and by different parties on separate counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
5.9. Injunctive Relief. The Stockholder, on behalf of himself
and his permitted transferees, and the Company, on its own behalf and on behalf
of its successors and assigns, each acknowledges and agrees that a violation of
any of the terms of this Agreement will cause the other irreparable injury for
which adequate remedy at law is not available. Accordingly, it is agreed that
the Company or the Stockholder, as the case may be, shall be entitled to an
injunction, restraining order or other equitable relief to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which it or he may be
entitled at law or equity.
5.10. Rights to Negotiate. Nothing in this Agreement shall be
deemed to restrict or prohibit the Company from purchasing shares of Common
Stock from the Stockholder at any time upon such terms and conditions and at
such price as may be mutually agreed upon between the Company and the
Stockholder, whether or not at the time of such purchase circumstances exist
<PAGE> 9
9
which specifically grant the Company the right to purchase, or the Stockholder
the right to sell, shares of Common Stock pursuant to the terms of this
Agreement or the Stockholders Agreement.
5.11. Rights Cumulative; Waiver. The rights and remedies of
the Stockholder and the Company under this Agreement shall be cumulative and not
exclusive of any rights or remedies which either would otherwise have hereunder
or at law or in equity or by statute, and no failure or delay by either party in
exercising any right or remedy shall impair any such right or remedy or operate
as a waiver of such right or remedy, nor shall any single or partial exercise of
any power or right preclude such party's other or further exercise or the
exercise of any other power or right. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ James L. Elrod, Jr.
----------------------------------------
Name: James L. Elrod, Jr.
Title: President
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
STOCKHOLDER:
/s/ Mitchell Eisenberg
--------------------------------
Mitchell Eisenberg
<PAGE> 12
MITCHELL EISENBERG
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares Purchase Price Aggregate Purchase
of Common Stock Per Share Price Payable
- - --------------- --------- -------------
<S> <C> <C>
135,135** Per share price paid by Acquisition $1,249,998.75
for Sheridan Common Stock
pursuant to the Offer
</TABLE>
** Assuming a purchase price per share of $9.25.
<PAGE> 13
MITCHELL EISENBERG
SCHEDULE II
<TABLE>
<CAPTION>
Number of Shares Subject Number of Shares Subject
to Time Options to Performance Options
- - --------------- ----------------------
<S> <C>
216,666 108,334
</TABLE>
<PAGE> 14
Exhibit (c) (2)
EXECUTION COPY
================================================================================
STOCKHOLDERS AGREEMENT
dated as of March 24, 1999
among
VESTAR/CALVARY HOLDINGS, INC.,
SHERIDAN HEALTHCARE, INC.,
VESTAR/CALVARY INVESTORS, LLC,
MITCHELL EISENBERG,
LEWIS D. GOLD,
MICHAEL F. SCHUNDLER,
JAY A. MARTUS
and
THE OTHER MANAGEMENT INVESTORS
================================================================================
<PAGE> 15
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.......................................................1
1.1 Defined Terms.....................................................1
1.2 Other Definitional Provisions; Interpretation....................10
SECTION 2. VOTING AGREEMENTS................................................11
2.1 Election of Directors............................................11
2.2 Other Voting Matters.............................................12
SECTION 3. TRANSFERS AND ISSUANCES..........................................12
3.1 Transfers to be Made Only as Permitted or
Required by this Agreement ......................................12
3.2 Permitted Transfers..............................................13
3.3 Effect of Void Transfers.........................................13
3.4 Legend on Securities.............................................13
3.5 Tag-Along Rights.................................................14
3.6 Public Offerings, etc. ..........................................15
3.7 Drag-Along Rights................................................16
3.8 Rights of First Refusal..........................................16
3.9 Participation Right..............................................18
3.10 Partial Transfers Following a Qualified Public Offering..........19
3.11 Partial Transfers to Cover Option-Related Tax Payments...........19
3.12 Transfers to Other Management Investors. .......................20
3.13 Call Right.......................................................20
3.14 Put Right........................................................22
SECTION 4. REGISTRATION RIGHTS..............................................24
4.1 Demand Registration..............................................24
4.2 Incidental Registration..........................................25
4.3 Registration Procedures..........................................27
4.4 Underwritten Offerings...........................................30
4.5 Preparation; Reasonable Investigation............................31
4.6 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants.....................................31
4.7 Expenses.........................................................32
4.8 Indemnification..................................................33
4.9 Participation in Underwritten Registrations......................34
4.10 Rule 144.........................................................35
4.11 Holdback Agreements..............................................35
4.12 Mezzanine Securities.............................................35
SECTION 5. MISCELLANEOUS....................................................36
5.1 Additional Securities Subject to Agreement.......................36
-i-
<PAGE> 16
5.2 Termination......................................................36
5.3 Injunctive Relief................................................36
5.4 Other Stockholders' Agreements...................................36
5.5 Amendments.......................................................36
5.6 Successors, Assigns and Transferees..............................36
5.7 Notices..........................................................36
5.8 Integration......................................................37
5.9 Severability.....................................................37
5.10 Counterparts.....................................................37
5.11 Governing Law....................................................38
5.12 Jurisdiction.....................................................38
5.13 Management Investors.............................................38
5.14 83(b) Election...................................................38
5.15 Management Investor Representative...............................38
5.16 Covenant Not to Compete..........................................39
5.17 Business Opportunities...........................................39
5.18 Confidentiality..................................................40
5.19 Effectiveness....................................................40
SCHEDULE 1 - Initial Other Management Investors
-ii-
<PAGE> 17
STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among
Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan
Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors,
LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis
D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior
Management Investors") and the other persons listed on Schedule 1 hereto
(collectively, together with the persons identified in the supplementary
agreements referred to in Section 5.13 hereof, the "Other Management
Investors"). The Senior Management Investors and the Other Management Investors
are collectively referred to herein as the "Management Investors".
W I T N E S S E T H :
WHEREAS, the Company, the Senior Management Investors and the Other
Management Investors listed on Schedule 1 hereto have entered into subscription
and tender agreements dated as of the date hereof (the "Subscription and Tender
Agreements");
WHEREAS, pursuant to the Subscription and Tender Agreements and on
the terms and subject to the conditions set forth therein, the Senior Management
Investors and the Other Management Investors listed on Schedule 1 hereto have
agreed to purchase shares of common stock of the Company;
WHEREAS, the Company, Sheridan, Vestar and the Management Investors
desire to make certain arrangements among themselves with respect to matters set
forth herein; and
WHEREAS, it is a condition to the consummation of the closings under
the Subscription and Tender Agreements that this Agreement (as defined below)
shall have been duly authorized, executed and delivered by each of the parties
hereto and be in full force and effect;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, terms defined in the
headings and the recitals shall have their respective assigned meanings, and the
following capitalized terms shall have the meanings ascribed to them below:
"Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company.
"Affiliate" means, with respect to any Person, (i) any Person that
directly or indirectly controls, is controlled by or is under common control
with, such Person, or (ii) any director, officer, partner or employee of such
Person or any Person specified in clause (i) above, or
(iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or
sibling of any Person specified in clause (i) or (ii) above.
<PAGE> 18
2
"Aggregate Investment" shall have the meaning ascribed to such term
in the definition of "Lapse Date."
"Agreement" means this Stockholders Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Applicable Percentage" shall mean (i) for the period from the
Closing Date through the day immediately preceding the first anniversary of the
Closing Date, 0%, (ii) for the period from the first anniversary of the Closing
Date through the date immediately preceding the second anniversary of the
Closing Date, 25%, (iii) for the period from the second anniversary of the
Closing Date through the day immediately preceding the third anniversary of the
Closing Date, 50%, (iv) for the period from the third anniversary of the Closing
Date through the day immediately preceding the fourth anniversary of the Closing
Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%.
"Business Day" means a day other than a Saturday, Sunday, holiday or
other day on which commercial banks in New York City or Miami, Florida are
authorized or required by law to close.
"Call Notice" shall have the meaning ascribed to such term in
Section 3.13(a).
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Management Investor and the Company or any of
its Subsidiaries which is in effect as of or after the Closing Date (as the same
may be amended in accordance with the terms thereof) or, if not defined therein
or if there shall be no such agreement, "Cause" shall exist if a Management
Investor has (i) committed an act of fraud, embezzlement, misappropriation or
breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary
of the Company or Sheridan or a felony involving the business, assets, customers
or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan or has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material breach
of any written confidentiality, non-compete, non-solicitation or business
opportunity covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Management Investor's duties to Sheridan,
the Company or any Subsidiary, including by committing a material breach of any
written covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty (30)
days after delivery to the Management Investor by Sheridan of written notice
thereof; or (iv) breached the Management Investor's obligations pursuant to
Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's
substance abuse policy.
"Closing Date" shall have the meaning ascribed to such term in the
Subscription and Tender Agreements.
<PAGE> 19
3
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute. Any reference herein to a particular
provision of the Code shall mean, where appropriate, the corresponding provision
in any successor statute.
"Columbia" means the hospitals and ambulatory surgical facilities
owned by Columbia/HCA Healthcare, Inc.
"Common Stock" means the common stock of the Company or common
equity securities, or securities exchangeable or exercisable for or convertible
into common equity securities, of any Person into or for which Common Stock is
converted, exchanged or received in an Exit Transaction.
"Common Stock Equivalents" means any stock, warrants, rights, calls,
options or other securities exchangeable or exercisable for or convertible into
Common Stock.
"Company" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include any Person who, in connection
with an Exit Transaction, becomes the issuer of Common Stock.
"Competitive Enterprise" means any Person the activities, products
or services of which (A) are competitive with activities, products or services
of the Company or any of its Controlled Entities (as defined in the Merger
Agreement) in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Management Investor's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services, including without
limitation, the provision of anesthesia services, pain management services,
emergency room services, primary medical care services, neonatology,
perinatology and radiology services; (2) the provision of Payor Services; (3)
the provision of administrative services for medical services and Payor
Services, including without limitation, quality assurance services, utilization
management services, billing services, recruitment services and medical
management information services; or (4) the provision of services or products of
any nature to Columbia.
"Confidential Information" shall have the meaning ascribed to such
term in Section 5.18(a).
"Cost" means the purchase price per share of Common Stock paid by
the applicable Management Investor determined by dividing (x) the total purchase
price paid by such Management Investor on the date of purchase of such share by
(y) the number of shares of Common Stock purchased by such Management Investor
on such date, as adjusted by the Board of Directors of the Company in good faith
and on a consistent basis to reflect Exit Transactions and stock splits, stock
dividends, recapitalizations and other similar transactions.
"Cost Securities" shall have the meaning ascribed to such term in
Section 3.13(f).
"Custody Agreement and Power of Attorney" shall have the meaning
ascribed to such term in Section 4.2(c)
<PAGE> 20
4
"DGCL" shall have the meaning ascribed to such term in Section 5.11.
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Management Investor and the Company or
any of its Subsidiaries which is in effect as of or after the Closing Date (as
the same may be amended in accordance with the terms thereof) or, if not defined
therein or if there shall be no such agreement, as defined in Sheridan's
long-term disability plan as in effect from time to time or if, there shall be
no plan or if not defined therein, the Management Investor's becoming physically
or mentally incapacitated and consequent inability for a period of six (6)
months in any twelve (12) consecutive month period to perform the Management
Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the
Company.
"Effective Time" shall have the meaning ascribed to such term in the
Merger Agreement.
"Exit Transaction" shall have the meaning ascribed to such term in
the definition of "Lapse Date."
"Equity Interests" shall have the meaning ascribed to such term in
Section 3.9(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
"Fair Market Value" shall mean, as of any date of determination,
with respect to shares of Common Stock, (x) prior to a Qualified Public
Offering, the fair market value of the shares, disregarding any discount for
minority interest, restrictions on transfer of the shares or lack of
marketability of the shares, as determined in good faith and on a consistent
basis by the Board of Directors of the Company, giving due consideration to,
among other things, the earnings and other financial and operating information
of the Company, Sheridan and its Subsidiaries in recent periods, the future
prospects of the Company, Sheridan and its Subsidiaries, the general condition
of the securities markets and the fair market value of securities of companies
of a similar size and engaged in businesses similar to the business of the
Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public
Offering, the price per share of Common Stock equal to the average of the last
sales price of a share of Common Stock on each of the last five trading days
prior to the date of determination (the "FMV Calculation Period") on each
exchange on which the Common Stock may at the time be listed or, if there shall
have been no sales on any of such exchanges during the FMV Calculation Period,
the average of the closing bid and asked prices on each such exchange on each
day during the FMV Calculation Period or, if there are no such bid and asked
prices during the FMV Calculation Period, on the next preceding five dates on
which such bid and asked prices occurred or, if Common Stock shall not be so
listed, the average of the closing sales prices as reported by NASDAQ during the
FMV Calculation Period in the over-the-counter market.
"Family Group" shall have the meaning ascribed to such term in
Section 3.2(a).
<PAGE> 21
5
"Financing Default" shall mean an event which constitutes (or which
with notice or lapse of time or both would constitute) an event of default
(which event of default has not been cured or waived) under any of the following
as originally entered into or as they may be amended from time to time: (i) any
agreement or instrument under which indebtedness of any of the Company and its
Subsidiaries is outstanding as of the time of the aforementioned event, and any
extensions, renewals, refinancings or refundings thereof in whole or in part;
(ii) any provision of the Company's or any of its Subsidiaries' certificates of
incorporation or other organizational documents as in effect on the date hereof;
(iii) any amendment of, supplement to or other modification of any of the
instruments referred to in clauses (i) or (ii) above; and (iv) any of the
securities issued pursuant to or whose terms are governed by the terms of any of
the agreements set forth in clauses (i) and (ii) above, and any extensions,
renewals, refinancings or refundings thereof in whole or in part.
"FMV Calculation Period" shall have the meaning ascribed to such
term in the defined term "Fair Market Value".
"Good Reason" shall mean, if the Management Investor has entered
into an employment agreement with Sheridan, the Company or any of its
Subsidiaries which is in effect as of or after the Closing Date (as the same may
be amended in accordance with the terms hereof) the occurrence of such events
which, under the terms of such employment agreement, would expressly enable the
Management Investor to resign from employment and be treated under such
employment agreement as though the Management Investor's employment had been
terminated by the Company without "cause" or, if the employment agreement does
not include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of
Sheridan or the Company has failed to pay the Management Investor his salary;
(ii) the office where the Management Investor performs his duties is moved more
than 30 miles from where the Management Investor performed the Management
Investor's duties on the Closing Date; (iii) a substantial reduction of the
Management Investor's base salary (other than an across the board reduction
similarly affecting other comparable employees of Sheridan, the Company or its
Subsidiaries) or a substantial diminution of the Management Investor's duties,
which, in each case, has not been remedied within a reasonable time specified by
the Management Investor that is not less than thirty (30) days after delivery to
Sheridan of written notice describing the event constituting Good Reason.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Health Care Provider" means any physician, nurse, technician or
allied health care provider providing medical services on behalf of Sheridan or
any of its Affiliates on a full or part-time basis as an independent contractor
or consultant.
"Initial Call Period" shall have the meaning ascribed to such term
in Section 3.13(f).
<PAGE> 22
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"Initial Public Offering" means the first Public Offering occurring
after the date hereof.
"Issuance" shall have the meaning ascribed to such term in Section
3.9(a).
"Junior Subordinated Note" shall have the meaning ascribed to such
term in Section 3.13(g).
"Lapse Date" means the earlier of (x) the fifth anniversary of the
Closing Date and (y) the date of the sale, exchange or other disposition by
Vestar and its Affiliates, in one or a series of transactions (including,
without limitation, by way of merger, reorganization, recapitalization,
consolidation, sale of capital stock or assets of Sheridan or any other
Subsidiary of the Company, or similar transaction that results in the
disposition, directly or indirectly, of the equity interests of Vestar and its
Affiliates (other than the Management Investors) in the Company) (collectively,
an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in
the Company immediately following the Closing Date plus (2) any additional
capital contributions to, or investments in, the Company made by any of Vestar
and its Affiliates after the Closing Date (clauses (1) and (2), collectively,
the "Aggregate Investment"); provided that, in the case of clause (y), either
(A) the consideration received by Vestar and its Affiliates in the Exit
Transaction for 70% or more of the Aggregate Investment is cash or securities
that are distributed in kind to the limited partners of Vestar Capital Partners
III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction
results in (i) designees of Vestar and its Affiliates not constituting a
majority of the Board of Directors (or analogous governing body) of the Company
and (ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding securities of the Company entitled to vote generally in the election
of directors (or members of an analogous governing body) of the Company.
"Majority Selling Stockholders" shall have the meaning ascribed to
such term in Section 4.7.
"Management Investors" shall have the meaning ascribed to such term
in the preamble to this Agreement.
"Management Investor Offeree" shall have the meaning ascribed to
such term in Section 3.8(a).
"Manager Investor Representative" shall have the meaning ascribed to
such term in Section 5.15.
"Management Investor's Transfer Group" shall have the meaning
ascribed to such term in Section 3.8(a).
"Measurement Date" shall have the meaning ascribed to such term in
Section 3.10.
<PAGE> 23
7
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs, PHOs,
MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals,
clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid
intermediaries.
"Merger" shall have the meaning ascribed to such term in the Merger
Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated as
of the date hereof among Sheridan, the Company and Acquisition, as the same may
be amended, supplemented or otherwise modified from time to time, pursuant to
which, among other things, Acquisition will merge into Sheridan, with Sheridan
constituting the surviving corporation.
"Mezzanine Securities" means securities of the Company, excluding
Common Stock, but including preferred stock and warrants to purchase Common
Stock, issued to any of Vestar and its Affiliates prior to the Effective Time,
and any securities into or for which such securities are exchangeable.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"No Call Notice" shall have the meaning ascribed to such term in
Section 3.13(e).
"No ROFR Notice" shall have the meaning ascribed to such term in
Section 3.8(g).
"Non-Competition Period" means with respect to each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a non-competition provision, the period commencing on the last day of
the Term of Employment and ending on the first anniversary of the last day of
the Term of Employment.
"Offeror" shall have the meaning ascribed to such term in Section
3.8(a).
"Option" means any option to acquire Common Stock or other capital
stock of the Company, including without limitation, all options granted under
the Company's 1999 Stock Option Plan.
"Option Shares" means all Common Stock or other capital stock of the
Company received by a Management Investor upon the exercise or other settlement
of an Option.
"Other Capital Stock" shall have the meaning ascribed to such term
in Section 3.9(a)(i).
"Other Capital Stock Equivalents" shall have the meaning ascribed to
such term in Section 3.9(a)(ii).
<PAGE> 24
8
"Other Management Investors" shall have the meaning ascribed to such
term in the preamble to this Agreement.
"Payor Services" means payor services in the area of managed care,
third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs,
capitation pools and other similar arrangements.
"Permitted Payment" shall have the meaning ascribed to such term in
Section 3.13(g).
"Permitted Transferee" has the meaning ascribed to such term in
Section 3.2(a).
"Person" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust, unincorporated
association, joint venture, Governmental Authority or other entity of any nature
whatsoever.
"Public Offering" means the sale of Securities to the public
pursuant to an effective registration statement filed under the Securities Act.
"Purchased Shares" shall mean, with respect to each Management
Investor, those shares of Common Stock that are purchased by the Management
Investor from the Company (as adjusted in good faith and on a consistent basis
by the Board of Directors of the Company to reflect Exit Transactions and stock
splits, stock dividends, recapitalizations and other similar transactions),
other than pursuant to the exercise of an Option.
"Put Notice" shall have the meaning ascribed to such term in Section
3.14(a).
"Qualified Public Offering" shall mean the sale of Common Stock to
the public after the Effective Time pursuant to an effective registration
statement filed under the Securities Act, which, together with any earlier
registered public sales of Common Stock under the Securities Act occurring after
the Effective Time, results in aggregate gross proceeds to the Company or its
stockholders, or both, of at least $50 million.
"Regulations" means the regulations promulgated under the Code.
"Request" shall have the meaning ascribed to such term in Section
4.1(a).
"Requesting Stockholder" shall have the meaning ascribed to such
term in Section 4.1(a).
"Right" shall have the meaning ascribed to such term in Section
3.9(a).
"Securities" means shares of Common Stock or Common Stock
Equivalents or other securities of the Company, other than (i) debt securities
that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each
case whether owned on the date hereof or hereafter acquired.
<PAGE> 25
9
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"SEC" means the Securities and Exchange Commission.
"Selling Stockholder" shall have the meaning ascribed to such term
in Section 4.3(c).
"Senior Management Investors" shall have the meaning ascribed to
such term in the preamble to this Agreement.
"Sheridan" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include its successors by means of a
merger, consolidation, reorganization, recapitalization or similar transaction.
"Stockholders" means Vestar, the Management Investors, and their
respective Permitted Transferees.
"Subscription and Tender Agreements" shall have the meaning ascribed
to such term in the recitals to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or fifty percent (50%) or more of the
equity interest therein, is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Tag Notice" shall have the meaning ascribed to such term in Section
3.5(b).
"Tagging Stockholder" shall have the meaning ascribed to such term
in Section 3.5(a).
"Term of Employment" means with respect to each Management Investor
who is not a Senior Management Investor and who is not a party to a written
employment agreement with the Company or any of its Subsidiaries that contains a
non-competition provision, any time during the period in which such Management
Investor is employed by the Company or any of its Subsidiaries.
"Third Party" means any Person other than the Company, the
Stockholders and their Affiliates.
"Transfer" means any transfer, sale, assignment, distribution,
exchange, mortgage, pledge, hypothecation or other disposition of any Securities
or any interest therein, including transfers by operation of law in connection
with a merger transaction or otherwise.
<PAGE> 26
10
"Transfer Notice" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Offer" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Securities" shall have the meaning ascribed to such term
in Section 3.8(a).
"Vestar" shall have the meaning ascribed to such term in the
preamble to this Agreement.
"Vested Purchased Shares" shall mean at any time, the number of
Purchased Shares initially acquired by a Management Investor (as adjusted in
good faith and on a consistent basis by the Board of Directors of the Company to
reflect Exit Transactions and stock splits, stock dividends, recapitalizations
and other similar corporate transactions) times the Applicable Percentage.
1.2 Other Definitional Provisions; Interpretation. (a) The words
"hereof", "herein", and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Subsection, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(b) The headings in this Agreement are included for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of this Agreement.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) For purposes of comparing the beneficial ownership of any Person
on the date of execution and delivery of this Agreement to the level of such
ownership at any later time, the level of ownership on such later date shall be
adjusted to eliminate the effect of any subdivision of the Common Stock, any
combination of the Common Stock, any issuance of Common Stock or Common Stock
Equivalents by reason of any reclassification (including, without limitation,
any reclassification in connection with a merger or consolidation), or any
dividend payable in Common Stock or Common Stock Equivalents.
SECTION 2. VOTING AGREEMENTS
2.1 Election of Directors. (a) Each Stockholder hereby agrees that,
so long as this Agreement shall remain in effect, such Stockholder will vote all
of the voting Securities owned or held of record by such Stockholder so as to
elect and, during such period, to continue in office a Board of Directors of the
Company and each Subsidiary of the Company (other than Subsidiaries of
Sheridan), each consisting solely of the following:
(i) 3 designees of Vestar (or its designated Permitted Transferees);
<PAGE> 27
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(ii) 2 designees of the Management Investors (who shall be Mitchell
Eisenberg and Lewis Gold so long as each of them is an executive officer of
Sheridan); and
(iii) 2 persons to be designated by Vestar (or its designated
Permitted Transferees) in its sole discretion after consultation with the
Management Investor Representative.
(b) If at any time while this Agreement shall remain in effect
Vestar (or its designated Permitted Transferees) shall notify the other
Stockholders of its desire to remove, with or without cause, any director of the
Company or any of its Subsidiaries previously designated by it in accordance
with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities
owned or held of record by it so as to remove such director.
(c) If at any time while this Agreement shall remain in effect any
director previously designated by Vestar (or its Permitted Transferees) or the
Management Investors ceases to serve on the Board of Directors of the Company or
any Subsidiary of the Company (whether by reason of death, resignation, removal
or otherwise), the Stockholder or Stockholders who designated such director
shall be entitled to designate a successor director to fill the vacancy created
thereby on the terms and subject to the conditions of paragraph (a). Each
Stockholder agrees to vote all of the voting Securities owned or held of record
by such Stockholder so as to elect any such director.
(d) The parties hereto hereby agree that any individual designated
as a director of the Company or any Subsidiary of the Company may be removed for
cause (as reasonably determined by the Board of Directors of the Company, other
than such person) with or without the consent of the Stockholder which
designated such individual. No such removal of an individual designated pursuant
to this Section 2.1 shall affect the rights of any of the Stockholders to
designate a different individual pursuant to this Section 2.1.
(e) No fees shall be paid by the Company or any of its Subsidiaries
to any member of their respective Boards of Directors who are employees of
Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a
member of such Board of Directors; provided that the foregoing shall not limit
reimbursement of expenses in accordance with the expense reimbursement policy of
Sheridan and its Subsidiaries.
(f) The Stockholders hereby agree that Vestar (or its designated
Permitted Transferees) shall have sole discretion to determine the composition
of the Company's and its Subsidiaries' Board of Directors' committees (e.g.,
audit, compensation, etc.) through the rights granted to Vestar (or its
designated Permitted Transferees) pursuant to Section 2.1(a)(i).
2.2 Other Voting Matters. (a) Each Management Investor and their
Permitted Transferees hereby agrees that, until the occurrence of the Lapse
Date, such Stockholder will vote all of the Securities owned or held of record
by such Stockholder, either in person or by proxy, whether at a meeting of
stockholders or by executing a written consent, (i) consistent with the vote of
Vestar with respect to the shares of Common Stock beneficially owned by Vestar
and (ii) to ratify, approve and adopt any and all actions adopted or approved by
the Board of Directors of the Company.
<PAGE> 28
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(b) In order to effectuate the provisions of Sections 2.1 and 2.2
hereof, (i) each of the Management Investors and their Permitted Transferees
hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be
Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan,
a proxy to vote at any annual or special meeting of Stockholders, or to take
action by written consent in lieu of such meeting with respect to, or to
otherwise take action in respect of, all of the Securities owned or held of
record by the Management Investors and their Permitted Transferees in connection
with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the
provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is
irrevocable and is coupled with an interest. To effectuate the provisions of
this Section 2, the Secretary of each of the Company and each Subsidiary of the
Company, or if there be no Secretary such other officer of the Company or such
Subsidiary as the Board of Directors of the Company or such Subsidiary may
appoint to fulfill the duties of the Secretary, shall not record any vote or
consent or other action contrary to the terms of this Section 2.
SECTION 3. TRANSFERS AND ISSUANCES
3.1 Transfers to be Made Only as Permitted or Required by this
Agreement.
(a) Each Stockholder hereby agrees that such Stockholder will not,
directly or indirectly, Transfer any Securities unless such Transfer complies
with the provisions hereof and (i) such Transfer is pursuant to an effective
registration statement under the Securities Act and has been registered under
all applicable state securities or "blue sky" laws or (ii) such Stockholder
shall have furnished the Company with a written opinion of counsel reasonably
satisfactory to the Company in form and substance reasonably satisfactory to the
Company to the effect that no such registration is required because of the
availability of an exemption from registration under the Securities Act and all
applicable state securities or "blue sky" laws.
(b) Each Management Investor and their Permitted Transferees hereby
agrees that, except for Transfers in connection with a Public Offering,
Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or
3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no
Transfer shall occur unless the transferee shall agree to become a party to, and
be bound to the same extent as its transferor by the terms of, this Agreement in
accordance with the provisions of Section 5.6 hereof.
(c) Each Management Investor and their Permitted Transferees hereby
agrees that such Stockholder shall not, without the prior written consent of
Vestar (which consent may be withheld by Vestar in its absolute discretion),
effect a Transfer prior to the Lapse Date, except for Transfers in connection
with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10,
3.11, 3.12, 3.13 or 3.14 hereof.
3.2 Permitted Transfers. (a) Any Management Investor may Transfer
any of the Securities beneficially owned by him (i) to his spouse, parent,
descendant, step-child, or step-grandchild or any executor, estate, guardian,
committee, trustee or other fiduciary acting as such solely on behalf or solely
for the benefit of any such spouse, parent, descendant, step-child or
step-grandchild (collectively, a "Family Group"), (ii) to any trust,
corporation, partnership or limited liability company, all of the beneficial
interests in which shall be held, directly or
<PAGE> 29
13
indirectly, by such Management Investor and/or one or more of the Family Group
of such Management Investor; provided, however, that during the period that any
such trust, corporation, partnership or limited liability company holds any
right, title or interest in any Securities, no person other than such Management
Investor or members of the Family Group of such Management Investor may be or
become beneficiaries, stockholders, general partners or members thereof, (iii)
which he has purchased on a stock exchange or in the over-the-counter market
after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan,
the Company, Vestar or any of Vestar's Affiliates. A transferee under this
Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee
of Vestar and its Affiliates in a Transfer made in accordance with this
Agreement, is referred to as a "Permitted Transferee."
(b) Notwithstanding anything in this Agreement to the contrary,
Vestar and its Affiliates shall be entitled from time to time, without
compliance with Section 3.5, to Transfer any or all of the Securities
beneficially owed by them to any of their Affiliates who agrees to become a
party to, and be bound to the same extent as its transferor by, the terms of
this Agreement.
3.3 Effect of Void Transfers. In the event of any purported Transfer
of any Securities in violation of the provisions of this Agreement, such
purported Transfer shall be void and of no effect and the Company shall not give
effect to such Transfer.
3.4 Legend on Securities. Each certificate representing Securities
issued to any Stockholder shall bear the following legend on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE
"COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND
THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE
COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF
ANY VOTING RIGHTS GRANTED BY THE SECURITIES."
<PAGE> 30
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3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in
effect, with respect to any proposed Transfer by any of Vestar and its
Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock
permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the
Transferring Stockholder shall have the obligation, and each other Stockholder
(other than Vestar or any of its Affiliates) shall have the right, to require
the proposed transferee to purchase from each such other Stockholder having and
exercising such right (each a "Tagging Stockholder") a number of shares of
Common Stock up to the product (rounded up to the nearest whole number) of (i)
the quotient determined by dividing (A) the aggregate number of shares of Common
Stock beneficially owned on a fully diluted basis by such Tagging Stockholder
and sought by the Tagging Stockholder to be included in the contemplated
Transfer by (B) the aggregate number of shares of Common Stock beneficially
owned on a fully diluted basis by the Transferring Stockholder and all Tagging
Stockholders and sought by the Transferring Stockholder and all Tagging
Stockholders to be included in the contemplated Transfer and (ii) the total
number of shares of Common Stock proposed to be directly or indirectly
Transferred to the transferee in the contemplated Transfer, and at the same
price per share of Common Stock and upon the same terms and conditions
(including without limitation time of payment and form of consideration) as to
be paid and given to the Transferring Stockholder; provided that a Stockholder
shall not be deemed to beneficially own any shares underlying unexercised
Options unless such Options are vested and exercisable as of the date of the Tag
Notice described in Section 3.5(b); and provided further that in order to be
entitled to exercise its right to sell shares of Common Stock to the proposed
transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to
make to the transferee the same representations, warranties, covenants,
indemnities and agreements as the Transferring Stockholder agrees to make in
connection with the proposed Transfer of the shares of Common Stock of the
Transferring Stockholder (except that in the case of representations and
warranties pertaining specifically to the Transferring Stockholder a Tagging
Stockholder shall make the comparable representations and warranties pertaining
specifically to itself); and provided further that all representations,
warranties and indemnities shall be made by Tagging Stockholders severally and
not jointly and that the liability of the Transferring Stockholder and the
Tagging Stockholders (whether pursuant to a representation, warranty, covenant,
indemnification provision or agreement) shall be evidenced in writings executed
by them and the transferee and shall be borne by each of them on a pro rata
basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and
wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a)
shall convert or exercise or exchange such number of Common Stock Equivalents
into or for Common Stock as may be required therefor on or prior to the closing
date of such Transfer.
(b) The Transferring Stockholder shall give notice (a "Tag Notice")
to all relevant Stockholders of each proposed Transfer giving rise to the rights
of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at
least 45 days prior to the proposed consummation of such Transfer, setting forth
the name of the Transferring Stockholder, the number of shares of Common Stock
proposed to be so Transferred, the name and address of the proposed transferee,
the proposed amount and form of consideration, the other terms and conditions of
payment offered by the proposed transferee and the representations, warranties
and indemnities to be made or given by the Transferring Stockholders, and a
representation that the proposed transferee has been informed of the tag-along
rights provided for in this Section 3.5 and has agreed to purchase shares of
Common Stock in accordance with the terms hereof. The tag-along rights provided
by
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15
this Section 3.5 must be exercised by each Tagging Stockholder within 20 days
following receipt of the notice required by the preceding sentence, by delivery
of a written notice to the Transferring Stockholder indicating such Tagging
Stockholder's desire to exercise its rights and specifying the number of shares
of Common Stock it desires to sell. The Transferring Stockholder shall be
entitled under this Section 3.5 to Transfer to the proposed transferee the
number of shares of Common Stock equal to the excess of (x) the number referred
to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of
Common Stock set forth in the written notices, if any, delivered by the Tagging
Stockholders pursuant to the preceding sentence (up to the maximum number of
shares of Common Stock beneficially owned by such Tagging Stockholder required
to be purchased by the proposed transferee pursuant to the first sentence of
Section 3.5(a)). If the proposed transferee fails to purchase shares of Common
Stock from any Tagging Stockholder that has properly exercised its tag-along
rights, then the Transferring Stockholder shall not be permitted to make the
proposed Transfer, and any such attempted Transfer shall be void and of no
effect, as provided in Section 3.3 hereof.
(c) If any of the Tagging Stockholders exercise their rights under
Section 3.5(a), (i) the first shares of Common Stock to be transferred by such
Tagging Stockholder must be Vested Purchased Shares until such Tagging
Stockholder owns no more Vested Purchased Shares, then Option Shares until such
Tagging Stockholder owns no more Option Shares, then any remaining Purchased
Shares and (ii) the closing of the purchase of the Common Stock with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Transferring Stockholder's Common Stock.
3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7
shall not be applicable to offers and sales of Securities in a Public Offering
or, if such Securities previously have been sold in a Public Offering, pursuant
to Rule 144 under the Securities Act.
3.7 Drag-Along Rights. So long as this Agreement shall remain in
effect, if any of Vestar and its Affiliates receives an offer from a Third Party
to purchase all or any portion of the outstanding shares of Common Stock and
such offer is accepted by Vestar or such Affiliate, as the case may be, then
each other Stockholder hereby agrees that it will, if requested in writing not
less than 15 days' prior to the requested Transfer date by Vestar or such
Affiliate, Transfer a pro rata number of Securities beneficially owned by it to
such Third Party on the terms of the offer so accepted by Vestar or such
Affiliate, as the case may be; including making the same representations,
warranties, covenants, indemnities and agreements that Vestar or such Affiliate,
as the case may be, agrees to make (except that, in the case of representations
and warranties pertaining specifically to Vestar or such Affiliate, as the case
may be, each other Stockholder shall make the comparable representations and
warranties pertaining specifically to itself); provided that all
representations, warranties and indemnities shall be made by Stockholders
severally and not jointly and that the liability of Stockholders (whether
pursuant to a representation, warranty, covenant, indemnification provision or
agreement) shall be evidenced in writings executed by them and the transferee
and shall be borne by each of them on a pro rata basis; and provided further
that the terms of such offer applicable to any Common Stock beneficially owned
by such other Stockholder are no less favorable than the terms of such offer
applicable to the Common Stock beneficially owned by Vestar or such Affiliate,
as the case may be, and their respective Affiliates (including with respect to
the amount and nature of consideration and time of receipt
<PAGE> 32
16
thereof); and provided further that the first shares of Common Stock Transferred
by such other Stockholder must be Vested Purchased Shares until such other
Stockholder owns no more Vested Purchased Shares, then the Option Shares until
such other Stockholder owns no more Option Shares, then the portion of any
Options then held by such other Stockholder that are then vested and exercisable
(provided in the case of a Transfer of any such portion of the Options that the
Company shall have made acceptable arrangements with the transferee for the same
per share consideration to be paid to such Stockholder for such portion of the
Option as the transferee pays for the shares of Common Stock to be purchased by
the transferee, reduced by the aggregate option exercise price for the
transferred portion of the Options) until no portion of the Options held by such
Stockholder is vested and exercisable, and then any remaining Purchased Shares.
3.8 Rights of First Refusal. (a) Each Management Investor and their
Permitted Transferees agree that if, prior to a Qualified Public Offering, such
Management Investor or any of its Permitted Transferees receives a bona fide
offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer
Securities") then owned by such Management Investor or such Management
Investor's Permitted Transferees (collectively, the "Management Investor's
Transfer Group") from any Person (the "Offeror") which any member of the
Management Investor's Transfer Group wishes to accept (the "Management Investor
Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be
reduced to writing and shall provide a written notice (the "Transfer Notice") of
such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice
shall also contain an irrevocable offer to sell the Transfer Securities to the
Company, Vestar and Sheridan (in the manner set forth below) at a price equal to
the price contained in, and upon the same terms and conditions as the terms and
conditions contained in, the Transfer Offer and shall be accompanied by a true
and complete copy of the Transfer Offer (which shall identify the Offeror, the
Transfer Securities, the price contained in the Transfer Offer and the other
material terms and conditions of the Transfer Offer). At any time within 30 days
after the date of the receipt by the Company, Vestar and Sheridan of the
Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan
or any of their designated Affiliates shall have the right and option to
purchase all (but not less than all) of the Transfer Securities covered by the
Transfer Offer either (i) for the same consideration and on the same terms and
conditions as the Transfer Offer or (ii) if the Transfer Offer includes any
consideration other than cash, then, at the sole option of the Company, Vestar,
Sheridan, or any of their designated Affiliates, as applicable, at the
equivalent all cash price, determined in good faith by a majority of the members
of the Company's Board of Directors. If the option referred to in the preceding
sentence is exercised, on or prior to the 60th day after the date of receipt by
the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar,
Sheridan or any other designated Affiliates, as applicable, shall execute and
deliver to the Management Investor Offeree a written agreement in the form
included in the Transfer Offer, including representations, warranties, covenants
and indemnities, if the Transfer Offer included such written agreement, and
shall pay the relevant cash consideration, by delivering a certified bank check
or checks in (or, if the Management Investor Offeree so elects at least three
business days prior to the closing date in a writing specifying the Management
Investor Offeree's bank account and other wire Transfer instructions, by wire
transferring) the appropriate amount and shall deliver the relevant non-cash
consideration to the Management Investor Offeree against delivery at the
principal office of Sheridan of certificates or other instruments representing
the Transfer Securities so purchased, appropriately endorsed by the Management
Investor Offeree. If at the end of such 30-day period,
<PAGE> 33
17
the Company, Vestar and Sheridan have not delivered written notice of exercise
by them of their right to purchase the Transfer Securities pursuant to this
Section 3.8 or if at the end of such 60-day period, the Company, Vestar and
Sheridan have not tendered the purchase price for such shares in the manner set
forth above, the Management Investor Offeree shall be free for a period of 90
days from the end of such 30- or 60-day period, as applicable, to Transfer not
less than all of the Transfer Securities to the Offeror on the terms and
conditions set forth in the Transfer Notice (including the execution and
delivery of any written agreement in the form included in the Transfer Offer).
Such Offeror shall agree in a writing in form and substance reasonably
satisfactory to the Company to become a party hereto and be bound to the same
extent as the Management Investor Offeree by the provisions hereof. Promptly
after such sale, the Management Investor Offeree shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion and time
of completion of such sale and of the terms thereof as may reasonably be
requested by the Company. If for any reason any Management Investor Offeree does
not Transfer Transfer Securities to the Offeror on the terms and conditions set
forth in the Transfer Notice, or if any Management Investor Offeree wishes to
sell the Transfer Securities on terms other than those set forth in the Transfer
Notice, the provisions of this Section 3.8 shall again be applicable to the
Transfer Securities.
(b) The closing of the purchase of the Transfer Securities by the
Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate,
upon exercise of its right of first refusal pursuant to Section 3.8(a) shall
take place at the principal office of Sheridan on a date specified by the
Company, Sheridan, Vestar or any of their designated Affiliates, as applicable,
no later than the last day of the 60-day period after the giving of the Transfer
Notice.
(c) Notwithstanding anything in this Section 3.8 to the contrary,
(i) neither Vestar nor any of its designated Affiliates may exercise a right of
first refusal under this Section 3.8 unless Vestar has received a written notice
from the Company indicating the Company's intention not to exercise such right
of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its
designated Affiliates may exercise a right of first refusal under this Section
3.8 unless Sheridan has received a No ROFR Notice from Vestar.
3.9 Participation Right. (a) Except as otherwise set forth in
Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or
any of its Affiliates:
(i) additional shares of Common Stock or Common Stock Equivalents or
capital stock of the Company other than Common Stock and Common Stock
Equivalents ("Other Capital Stock"); or
(ii) any warrants, rights, calls, options or other securities
exchangeable for or exercisable or convertible into Other Capital Stock or
any other security other than Common Stock, Common Stock Equivalents or
Other Capital Stock entitled to participate in the Company's profits
(collectively, "Other Capital Stock Equivalents");
unless, prior to such Issuance, the Company notifies each Management Investor in
writing of the proposed Issuance and grants to such notified party or, at the
election of such notified party, one of its Affiliates the right (the "Right")
to subscribe for and purchase such additional shares of Common Stock or Other
Capital Stock or such additional shares or units of
<PAGE> 34
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Common Stock Equivalents or Other Capital Stock Equivalents (collectively,
"Equity Interests") so issued at the same price and upon the same terms and
conditions (including, in the event such Equity Interests are issued as a unit
together with other securities, the purchase of such other securities) as issued
in the Issuance such that:
(A) in the case of an Issuance in which shares of Common Stock or
Common Stock Equivalents are to be issued, immediately after giving effect
to the Issuance and exercise of the Right (including, for purposes of this
calculation, the issuance of shares of Common Stock upon conversion,
exchange or exercise of any Common Stock Equivalent issued in the Issuance
or subject to the Right), the shares of Common Stock beneficially owned by
the notified party and its Affiliates on a fully diluted basis (rounded to
the nearest whole share) shall represent the same percentage of the
aggregate number of shares of Common Stock outstanding on a fully diluted
basis as was beneficially owned by such notified party and its Affiliates
and Vestar and its Affiliates, respectively, immediately prior to the
Issuance; provided, that for purposes of the calculations required by this
Section 3.9(a)(A) notified parties and their Affiliates shall not be
deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance; and
(B) in the case of an Issuance in which shares of Other Capital
Stock or Other Capital Stock Equivalents are to be issued, the notified
party and its Affiliates shall have the Right to acquire a percentage of
the Other Capital Stock or Other Capital Stock Equivalents to be issued in
the Issuance equal to the percentage of shares of Common Stock on a fully
diluted basis that was beneficially owned by such notified party and its
Affiliates and Vestar and its Affiliates, respectively, immediately prior
to the Issuance; provided, that for purposes of the calculations required
by this Section 3.9(a)(B) notified parties and their Affiliates shall not
be deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance.
(b) The Right may be exercised by the notified party at any time by
written notice to the Company received by the Company within 20 days after the
date on which such notified party receives notice from the Company of the
proposed Issuance, and the closing of the purchase and sale pursuant to the
exercise of the Right shall occur at least 15 days (but not later than 180 days)
after the Company receives notice of the exercise of the Right and prior to or
concurrently with the closing of the Issuance. Notwithstanding the foregoing
provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of
Equity Interests pro rata to all holders of Common Stock and Other Capital
Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common
Stock Equivalent or any Other Capital Stock Equivalent outstanding on the
Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management
Investor or any other employee of the Company pursuant to a management stock
subscription agreement or stock option or other employee benefit plan of the
Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board
of Directors of the Company or a Subsidiary of the Company designated by Vestar
and its Permitted Transferees who is not a director, officer, general partner or
employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as
such to the
<PAGE> 35
19
Board of Directors of the Company or a Subsidiary of the Company, (v) any
Issuance pursuant to a bona fide underwritten public offering pursuant to an
effective registration statement under the Securities Act or (vi) any Issuance
of Mezzanine Securities.
3.10 Partial Transfers Following a Qualified Public Offering. Each
Senior Management Investor may, during the one year period commencing on the
second anniversary of the first Qualified Public Offering and during each one
year period commencing on each succeeding anniversary of such Qualified Public
Offering thereafter (each such anniversary being referred to as a "Measurement
Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option
Shares beneficially owned by such Senior Management Investor on the applicable
Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this
provision shall not permit a Senior Management Investor who has already
Transferred (pursuant to any provision of this Agreement which permits Transfers
by Senior Management Investors) the cumulative number of shares of Common Stock
he or she otherwise would be entitled to Transfer pursuant to this Section 3.10
to Transfer any additional shares of Common Stock.
3.11 Partial Transfers to Cover Option-Related Tax Payments.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by the Management Investor with Good Reason, and
thereafter such Management Investor exercises Options which would otherwise
expire unless so exercised, such Management Investor may Transfer Securities;
provided, that the aggregate purchase price for the Securities being Transferred
shall not exceed the total amount of taxes which such Management Investor's tax
consultant has reasonably advised will be due and owing in respect of such tax
year by such Management Investor as a result of such Management Investor
exercising such Options; and provided, further, that such Transfer shall be
subject to the right of first refusal provisions of Section 3.8.
3.12 Transfers to Other Management Investors.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then at
any time after the conclusion of the Second Call Period, such Management
Investor may Transfer all or any portion of the Securities beneficially owned by
him to one or more of the other Management Investors; provided, however, that if
the proposed purchase price for such Securities which is offered to the other
Management Investors is less than the relevant purchase price under Section
3.13(c), such proposed Transfer hereunder by such Management Investor shall be
subject to the right of first refusal provisions of Section 3.8.
3.13 Call Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated by the applicable employer for Cause, then within 180 days of the
employment termination date, and subject to Section 3.13(e), the Company,
Vestar, Sheridan or any of their designated Affiliates shall have the option to
purchase all or any portion of the Purchased Shares and Option Shares held by
such
<PAGE> 36
20
Management Investor and such Management Investor's Permitted Transferees by
providing written notice of the relevant election (including the number of
Securities to be purchased) to the applicable Management Investor and Permitted
Transferees (a "Call Notice"). The purchase price per share for such Securities
will be the lower of Cost and Fair Market Value on the date of termination of
employment.
(b) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated due to the death
or Disability of such Management Investor, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
such Securities will be the greater of Cost and Fair Market Value on the date of
termination of employment.
(c) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then
within the later of (1) 180 days of the employment termination date (and, with
respect to any Option Shares, within 180 days after the date of the last
exercise of any Options, if later) or (2) ten days after the applicable
Management Investor has rescinded his election to sell all or a portion of his
Purchased Shares which were to be paid for with a Junior Subordinated Note in
connection with the put right set forth in Section 3.14, and subject to Section
3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates
shall have the option to purchase all or any portion of the Purchased Shares and
Option Shares held by such Management Investor and such Management Investor's
Permitted Transferees by providing a Call Notice to the applicable Management
Investor and Permitted Transferees. The purchase price per share for (A) the
Applicable Percentage of the Purchased Shares and for all Option Shares will be
the greater of (x) Cost or (y) Fair Market Value on the date of termination of
employment and (B) the remaining portion of such Purchased Shares, if any, will
be Cost.
(d) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is voluntarily terminated by
such Management Investor without Good Reason, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
the Applicable Percentage of the Purchased Shares and for all Option Shares will
be Fair Market Value on the date of termination of employment and the purchase
price for the remaining portion of the Purchased Shares, if any, will be the
lower of (x) Cost or (y) Fair Market Value on the date of termination of
employment; provided that if such voluntary termination without Good Reason
occurs prior to the second anniversary of the Closing
<PAGE> 37
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Date, the Purchase Price per share for all Option Shares will be the lower of
(x) Cost or (y) Fair Market Value on the date of termination of employment.
(e) Notwithstanding anything in this Section 3.13 to the contrary
(i) neither Vestar nor any of its designated Affiliates may exercise a call
right under this Section 3.13 unless Vestar has received written notice from the
Company indicating the Company's intention not to exercise such call right (a
"No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates
may exercise a call right under this Section 3.13 unless Sheridan has received a
No Call Notice from Vestar.
(f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair
Market Value on the date of the Management Investor's termination of employment
and none of the Company, Vestar or Sheridan exercises the call right with
respect to the Purchased Shares and Option Shares which it could have purchased
at Cost (the "Cost Securities") during the 180 day period commencing on such
date of termination (the "Initial Call Period"), then the Company, Vestar or
Sheridan (subject once again to the provisions of Section 3.13(e) with respect
to the Second Call Period regardless of whether No Call Notices were issued in
the Initial Call Period) will have an additional right to call the Cost
Securities during the 90-day period commencing on the eighteen-month anniversary
of the Management Investor's termination of employment (the "Second Call
Period") by providing a Call Notice to the applicable Management Investor. The
purchase price per share for such Securities pursuant to Section 3.13(c)(A) will
be the greater of (x) Fair Market Value on the date of termination of employment
and (y) Fair Market Value on the first day of the Second Call Period and the
purchase price for such Securities pursuant to Section 3.13(c)(B) will be the
lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call
Period.
(g) The completion of the purchases pursuant to Sections 3.13(a),
(b), (c), (d) and (f) shall take place at the principal office of Sheridan on or
prior to the thirtieth (30th) day after the giving of the applicable Call
Notice. The repurchase price for the Securities shall be paid by delivery to the
appropriate Management Investor or Permitted Transferee of a certified bank
check or checks in the appropriate amount payable to the order of such
Management Investor or Permitted Transferee unless Sheridan is the party
exercising such call right and a Financing Default exists or, after giving
effect to such payment would exist, which prohibits such cash payment, in which
case the portion of the cash payment so prohibited shall be made, to the extent
permitted by any loan agreement, indenture or other agreement to which Sheridan
is a party, by Sheridan's delivery of a junior subordinated promissory note
(which shall be subordinated and subject in right of payment to the prior
payment of all indebtedness of Sheridan including, without limitation, any debt
outstanding under any credit agreement and any modifications, renewals,
extensions, replacements and refunding of all such indebtedness) of Sheridan (a
"Junior Subordinated Note") in a principal amount equal to the amount of the
purchase price which cannot be paid in cash, payable in five equal annual
installments commencing on the first anniversary of the issuance thereof and
bearing interest payable annually in arrears at the publicly announced prime
rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all
or any of the purchase price for any of the Securities with a Junior
Subordinated Note, and then resells such Securities for cash, the portion of the
accrued but unpaid interest and, to the extent of any excess, the outstanding
principal amount of the Junior Subordinated Note that is equal to the amount of
such cash proceeds shall become immediately due and payable, unless and to the
extent
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22
that payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, the payment
of all or any portion of the amounts outstanding under such Junior Subordinated
Note can be repaid by Sheridan without giving rise to a Financing Default (a
"Permitted Payment"), Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment (accrued interest first and then principal) in cash to the applicable
Management Investor or Permitted Transferee by delivery of a certified bank
check to the order of such Management Investor or Permitted Transferee. If
Sheridan cannot pay the purchase price for any Securities subject to a Call
Notice in cash or a Junior Subordinated Note due to any circumstance described
in this subparagraph 9(g), Sheridan shall not be permitted to exercise the
applicable call right.
3.14 Put Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated due to the death or Disability of such Management Investor, then
within 180 days of the employment termination date such Management Investor and
the members of the Family Group of such Management Investor shall have the
option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one
occasion from such Management Investor and the members of the Family Group of
such Management Investor, all or any portion of the Purchased Shares held by
such Management Investor and the members of the Family Group of such Management
Investor by providing written notice of his or their election (including the
number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase
price per share for such Securities will be Fair Market Value on the date of
termination of employment.
(b) If, at any time prior to the Lapse Date, a Senior Management
Investor's employment with the Company and its Subsidiaries is terminated by the
applicable employer without Cause or by such Senior Management Investor with
Good Reason, then within 180 days of the employment termination date such Senior
Management Investor shall have the option to sell to Sheridan, and Sheridan
shall be obligated to purchase, on one occasion from such Senior Management
Investor a number of Purchased Shares held by such Senior Management Investor
the aggregate purchase price for which under this Section 3.14(b) is not in
excess of the aggregate purchase price paid by such Senior Management Investor
on the Closing Date for all Securities purchased by such Senior Management
Investor on the Closing Date. Such Senior Management Investor shall exercise
such put right by providing a Put Notice to Sheridan. The purchase price per
share for (A) the Applicable Percentage of such Purchased Shares will be Fair
Market Value on the date of termination of employment and (B) the remaining
portion of such Purchased Shares, if any, will be the lower of Cost and Fair
Market Value on the date of termination of employment.
(c) The completion of the purchase pursuant to Section 3.14 (a)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice. The purchase price for the Purchased
Shares included in the Put Notice shall be paid by delivery to the appropriate
Management Investor or the members of his Family Group, as applicable, of a
certified bank check or checks in the appropriate amount payable to the order of
such Management Investor or the members of his Family Group, as applicable,
unless a Financing Default exists or, after giving effect to such payment would
exist, which prohibits such cash
<PAGE> 39
23
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the purchase price with a Junior Subordinated Note, Sheridan
shall give the notice of the principal amount of such note at least 15 days
prior to such purchase, and the relevant Management Investor shall have ten days
thereafter to rescind his election to sell all or a portion of his Purchased
Shares to be paid for with such note. If Sheridan pays all or any portion of the
purchase price for any Purchased Shares with a Junior Subordinated Note, and
then resells such Purchased Shares for cash, the portion of the accrued but
unpaid interest and, to the extent of any excess, the outstanding principal
amount of the Junior Subordinated Note that is equal to the amount of such cash
proceeds shall become immediately due and payable, unless and to the extent that
payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted
Payment can be made, Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment in cash to the applicable Management Investor or the members of his
Family Group, as applicable, by delivery of a certified bank check to the order
of such Management Investor or the members of his Family Group, as applicable.
(d) The completion of the purchase pursuant to Sections 3.14 (b)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice, at which time at least fifty percent of
the purchase price shall be paid. If Sheridan elects to pay less than all of the
purchase price initially, the remaining portion of the purchase price shall be
paid in one payment on or prior to the first anniversary of the giving of the
Put Notice. The purchase price for the Purchased Shares included in the Put
Notice shall be paid by delivery to the appropriate Senior Management Investor
of a certified bank check or checks in the appropriate amount payable to the
order of such Senior Management Investor unless a Financing Default exists or,
after giving effect to such payment would exist, which prohibits such cash
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the initial payment of the purchase price with a Junior
Subordinated Note, Sheridan shall give the Senior Management Investor notice of
the principal amount of such note at least 15 days prior to such purchase, and
the relevant Senior Management Investor shall have ten days thereafter to
rescind his election to sell all or a portion of his Purchased Shares to be paid
for with such note. If Sheridan pays all or any portion of the purchase price
for any Purchased Shares with a Junior Subordinated Note, and then resells such
Purchased Shares for cash, the portion of the accrued but unpaid interest and,
to the extent of any excess, the outstanding principal amount of the Junior
Subordinated Note that is equal to the
<PAGE> 40
24
amount of such cash proceeds shall become immediately due and payable, unless
and to the extent that payment of such accrued interest or outstanding principal
under the Junior Subordinated Note would constitute or result in a Financing
Default. If at any time after the issuance by Sheridan of a Junior Subordinated
Note, a Permitted Payment can be made, Sheridan shall, as promptly as
practicable but not later than thirty days after such payment becomes
permissible, pay the Permitted Payment (accrued interest first and then
principal) in cash to the applicable Senior Management Investor by delivery of a
certified bank check to the order of such Senior Management Investor.
SECTION 4. REGISTRATION RIGHTS
4.1 Demand Registration.
(a) Common Stock Request. Upon the written request (a "Request") of
Vestar or its designated Permitted Transferees that the Company effect the
registration under the Securities Act of all or part of the shares of Common
Stock owned or to be acquired upon conversion, exercise or exchange of Common
Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting
Stockholder"), the Company will use its best efforts to effect the registration
under the Securities Act of such shares.
(b) Registration Statement Form. Registrations under this Section
4.1 shall be on such appropriate registration form of the SEC as shall (i) be
selected by the Company and (ii) permit the disposition of the Common Stock
being registered in accordance with the intended method or methods of
disposition specified in the request for such registration. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the underwriters, the Requesting Stockholder and the
Company, is required to be included.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, or
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
Governmental Authority for any reason not attributable to the Requesting
Stockholder or any of its Affiliates and has not thereafter become effective.
(d) Limitations on Registration on Request. Notwithstanding anything
in this Section 4.1 to the contrary, in no event will (i) the Company be
required to effect more than one registration pursuant to Section 4.1(a) within
any 180 day period or (ii) the Requesting Stockholder be entitled to more than
five registrations in the aggregate pursuant to Section 4.1(a); unless in the
case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of
the costs and expenses of each such additional registration (unless either (x) a
registration so requested is not deemed to have been effected pursuant to
Section 4.1(c) for a reason not attributable to the Requesting Stockholder or
any of its Affiliates or (y) the number of shares of Common Stock sought to be
included by such Requesting Stockholder in such registration is reduced by more
than 25% pursuant to the provisions of Section 4.2(b)).
<PAGE> 41
25
4.2 Incidental Registration.
(a) Right to Include Common Stock and Common Stock Equivalents. If
the Company at any time proposes to register any shares of Common Stock (or
Common Stock Equivalents, including any registration of Common Stock Equivalents
pursuant to the exercise of rights under Section 4.2(b)) under the Securities
Act (except registrations on such form(s) solely for registration of Common
Stock or Common Stock Equivalents in connection with any employee benefit plan
or dividend reinvestment plan or a merger or consolidation), including
registrations pursuant to Section 4.1(a), whether or not for sale for its own
account, it will each such time as soon as practicable give written notice of
its intention to do so to all the Stockholders. Upon the written request (which
request shall specify the total number of shares of Common Stock or Common Stock
Equivalents intended to be disposed of by such Stockholder) of any Stockholder
made within 30 days after the receipt of any such notice (15 days if the Company
gives telephonic notice with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such shorter
period of time is required because of a planned filing date), the Company will
use all reasonable efforts to effect the registration under the Securities Act
of all Common Stock held or to be acquired upon conversion, exercise or exchange
of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be
registered by the Company, Common Stock Equivalents) by the Stockholders which
the Company has been so requested to register for sale in the manner initially
proposed by the Company; provided that the Company shall not be obliged to
register any Common Stock Equivalents which are not of the same class, series
and form as the Common Stock Equivalents proposed to be registered by the
Company. If the Company thereafter determines for any reason not to register or
to delay registration of the Common Stock or Common Stock Equivalents (provided,
however, that in the case of any registration pursuant to Section 4.1(a), such
determination shall not violate any of the Company's obligations under Section
4.1 or any other provision of this Agreement), the Company may, at its election,
give written notice of such determination to the Stockholders and (A) in the
case of a determination not to register, shall be relieved of the obligation to
register such Common Stock or Common Stock Equivalents in connection with such
registration (without prejudice, however, to any right the Requesting
Stockholder may have to request that such registration be effected as a
registration under Section 4.1(a)) and (B) in the case of a determination to
delay registering, shall be permitted to delay registering any Common Stock or
Common Stock Equivalents of a Stockholder for the same period as the delay in
registration of such other securities. No registration effected under this
Section 4.2(a) shall relieve the Company of any obligation to effect a
registration upon a Common Stock Request under Section 4.1(a).
(b) Priority in Incidental Registration. In a registration pursuant
to this Section 4.2, if the managing underwriter of such underwritten offering
shall inform the Company and the relevant Stockholders by letter of its belief
that the number of shares of Common Stock or Common Stock Equivalents, as the
case may be, to be included in such registration would adversely affect its
ability to effect such offering, then the Company will be required to include in
such registration only that number of shares of Common Stock or Common Stock
Equivalents which it is so advised should be included in such offering. Shares
of Common Stock or Common Stock Equivalents proposed by the Company to be
registered for issuance by the Company shall have the first priority in a
registration pursuant to Section 4.2(a) and all other shares of Common
<PAGE> 42
26
Stock or Common Stock Equivalents to be registered (whether or not requested to
be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given
second priority without preference among the relevant holders. If less than all
of the Stockholder's shares of Common Stock or Common Stock Equivalents are to
be registered, each such Stockholder's shares of Common Stock or Common Stock
Equivalents shall be included in the registration pro rata based on the total
number of shares of Common Stock or Common Stock Equivalents sought to be
registered by each Stockholder (as opposed to the Company).
(c) Custody Agreement and Power of Attorney. Upon delivering a
request under this Section 4.2, Management Investors and their Permitted
Transferees will, if requested by the Company, execute and deliver a custody
agreement and power of attorney in form and substance reasonably satisfactory to
the Company and one of the director designees referred to in Section 2.1(a)(i)
with respect to such Stockholder's shares of Common Stock or Common Stock
Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement
and Power of Attorney"). The Custody Agreement and Power of Attorney will
provide, among other things, that the Stockholder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein (who shall be
reasonably satisfactory to one of the director designees referred to in Section
2.1(a)(i)) a certificate or certificates representing such shares of Common
Stock or Common Stock Equivalents (duly endorsed in blank by the registered
owner or owners thereof or accompanied by duly executed stock powers in blank)
and irrevocably appoint said custodian and attorney-in-fact as such
Stockholder's agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on such Stockholder's behalf
with respect to the matters specified therein. Such Stockholder also agrees to
execute such other agreements as the Company may reasonably request to further
evidence the provisions of this Section 4.2.
4.3 Registration Procedures. In connection with the Company's
obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all
reasonable efforts to effect such registration and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use all reasonable efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (i) 180 days following the date on which such
registration statement is declared effective or (ii) the termination of the
offering being made thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
shares of Common Stock or Common Stock Equivalents, as the case may be, covered
by such registration statement until such Common Stock or Common Stock
Equivalents have been sold or such lesser period of time as the Company, any
seller of such Common Stock or Common Stock Equivalents or any underwriter is
required under the Securities Act to deliver a prospectus in accordance with the
intended methods of disposition by the sellers
<PAGE> 43
27
of such Common Stock or Common Stock Equivalents set forth in such registration
statement or supplement to such prospectus;
(c) furnish to each Stockholder which owns shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by such registration
statement (the "Selling Stockholders") and the managing underwriter, if any, at
least one executed original of the registration statement and such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, as may reasonably be requested by
such Selling Stockholder;
(d) use all reasonable efforts (i) to register or qualify all shares
of Common Stock or Common Stock Equivalents covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions where an
exemption is not available as the Selling Stockholders shall reasonably request,
(ii) to keep such registration or qualification in effect for so long as such
registration statement remains in effect and (iii) to take any other action
which may be reasonably necessary or advisable to enable the Selling
Stockholders to consummate the disposition in such jurisdictions of such Common
Stock or Common Stock Equivalents; provided that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, subject itself to taxation in any such jurisdiction or take
any action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Stockholders and the managing underwriter, if
any, promptly, and confirm such advice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to a registration statement or related prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the registered
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or information
becoming known which requires the making of any changes in a registration
statement or related prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (vi) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v)
above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document
<PAGE> 44
28
so that, as thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(h) use its best efforts to furnish to the Selling Stockholders a
signed counterpart, addressed to the Selling Stockholders and the underwriters,
if any, of (A) an opinion of counsel for the Company, and (B) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of the accountant's letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities (and dated the dates such opinions and comfort
letters are customarily dated) and, in the case of the accountant's letter, such
other financial matters, and in the case of the legal opinion, such other legal
matters, as the Selling Stockholders or the underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Selling Stockholders
an earnings statement satisfying the provisions of Section 10(a)(i) of the
Securities Act and Rule 158 promulgated thereunder, no later than 90 days after
the end of any 12-month period beginning after the effective date of a
registration statement pursuant to which shares of Common Stock or Common Stock
Equivalents are sold, which statement shall cover such 12-month period;
(j) cooperate with the Selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock or Common Stock Equivalents to
be sold; and enable such shares of Common Stock or Common Stock Equivalents to
be in such denominations and registered in such names as the Selling
Stockholders or the managing underwriters, if any, may request at least two
Business Days prior to any sale of shares of Common Stock or Common Stock
Equivalents to the underwriters;
(k) use its best efforts to cause the shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by the applicable
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Selling
Stockholder(s) or the underwriters, if any, to consummate the disposition of
such shares of Common Stock or Common Stock Equivalents;
(l) cause all shares or units of Common Stock or Common Stock
Equivalents, as the case may be, covered by the registration statement to be
listed on each securities exchange, if any, on which securities of such class,
series and form issued by the Company, if any, are then listed if requested by
the managing underwriters, if any, or the holders of a majority of the shares or
units of Common Stock or Common Stock Equivalents covered by the registration
statement and entitled hereunder to be so listed;
<PAGE> 45
29
(m) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
(n) as soon as practicable prior to the filing of any document which
is to be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement) provide copies
of such document to counsel to the Selling Stockholders and to the managing
underwriters, if any, and make the Company's representatives available for
discussion of such document and consider in good faith making such changes in
such document prior to the filing thereof as counsel for such Selling
Stockholders or underwriters may reasonably request.
The Company may require each Selling Stockholder to furnish to the
Company such information regarding such Selling Stockholder and the distribution
of such securities as the Company may from time to time reasonably request in
writing in order to comply with the Securities Act.
The Selling Stockholders agree that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue
disposition pursuant to such registration statement of any shares of Common
Stock or Common Stock Equivalents, as the case may be, covered by such
registration statement or prospectus until their receipt of the copies of the
supplemented or amended prospectus relating to such registration statement or
prospectus or until they are advised in writing by the Company that the use of
the applicable prospectus may be resumed (and the period of such discontinuance
shall be excluded from the calculation of the period specified in clause (x) of
Section 4.3(a)) and, if so directed by the Company, will deliver to the Company
(at the Company's expense, except as otherwise provided in Section 4.1(d)) all
copies, other than permanent file copies then in their possession, of the
prospectus covering such securities in effect at the time of receipt of such
notice. The Selling Stockholders agree to furnish the Company a signed
counterpart, addressed to the Company and the underwriters, if any, of an
opinion of counsel for the Selling Stockholders covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of selling stockholder's counsel
delivered to the underwriters in underwritten public offerings of securities
(and dated the dates such opinions are customarily dated) and such other legal
matters as the Company or the underwriters may reasonably request.
4.4 Underwritten Offerings.
(a) Demand Underwritten Offerings. In any underwritten offering
pursuant to a registration requested under Section 4.1, the Company will use its
best efforts to enter into an underwriting agreement for such offering with the
underwriters selected by the Requesting Stockholder, such agreement and
underwriters to be reasonably satisfactory in form and substance to the Company,
the Requesting Stockholder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type. The Selling Stockholders who
hold shares of Common Stock to be
<PAGE> 46
30
distributed by such underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
them and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to their
obligations. The Company may require that any or all of the representations and
warranties by, and the other agreements on the part of the Selling Stockholders
to and for the benefit of such underwriters shall also be made to and for the
benefit of the Company with due regard to the amount of Securities being sold by
such Selling Stockholder and the nature of such representations, warranties and
agreements and the underwriting.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any shares of its Common Stock or Common Stock Equivalents
under the Securities Act as contemplated by Section 4.2 and such Securities are
to be distributed by or through one or more underwriters, the Company and the
Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents
to be distributed by such underwriters in accordance with Section 4.2 hereof
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of them and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to their obligations. The Company may, at its option, require that any
or all of the representations and warranties by, and the other agreements on the
part of the Selling Stockholders to and for the benefit of such underwriters
shall also be made to and for the benefit of the Company with due regard to the
amount of Securities being sold by such Selling Stockholder and the nature of
such representations, warranties and agreements and the underwriting.
4.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Stockholders, the
underwriters and their respective counsels and accountants a reasonable
opportunity (but such Persons shall not have the obligation) to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the SEC, and, to the extent practicable, each amendment thereof or
supplement thereto, and, subject to the execution and delivery of a customary
confidentiality agreement, will give each of them such access to its books and
records (to the extent customarily given to the underwriters of the Company's
securities), and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary to conduct a reasonable investigation
within the meaning of the Securities Act.
4.6 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause shares of Common Stock and Common Stock Equivalents to be
registered under the Securities Act are subject to each of the following
limitations, conditions and qualifications:
<PAGE> 47
31
(a) The Company shall be entitled to postpone for a reasonable
period of time the filing or effectiveness of, or suspend the rights of Selling
Stockholders to make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (i) 15 days after the cessation of the circumstances described in
clauses (A) and (B) below or (ii) 120 days after the date of the determination
of the Board of Directors of the Company referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (i) of Section 4.3(a)) if the Board of Directors of
the Company determines in good faith that (A) there is a material undisclosed
development in the business or affairs of the Company (including any pending or
proposed financing, recapitalization, acquisition or disposition), the
disclosure of which at such time could be adverse to the Company's interests or
(B) the Company has filed a registration statement with the SEC, such
registration statement has not yet been declared effective, the Company is using
its reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such registration would be adversely affected. If the Company shall so delay the
filing of a registration statement, it shall, as promptly as possible, notify
the Selling Stockholders of such determination, and the Selling Stockholders
shall have the right (x) in the case of a postponement of the filing or
effectiveness of a registration statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (y) in the case of a suspension of the right
to make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company shall not be required hereby to include shares of
Common Stock or Common Stock Equivalents in a registration statement if, in the
written opinion (to be issued to, and relied upon by, the Stockholders seeking
inclusion) of outside counsel to the Company of recognized standing in
securities law matters, the beneficial owners of such Common Stock or Common
Stock Equivalents seeking registration would be free to sell all of such shares
of Common Stock or Common Stock Equivalents within the current calendar quarter
without registration under Rule 144 under the Securities Act.
(c) The Company's obligations shall be subject to the obligations of
the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish
all information and materials and to take any and all actions as may be required
under applicable federal and state securities laws and regulations to permit the
Company to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such registration statement.
(d) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
4.7 Expenses. The Company and Sheridan jointly and severally agree
to pay all reasonable out-of-pocket costs and expenses incurred in connection
with each registration of Common Stock or Common Stock Equivalents pursuant to
this Agreement, including, without limitation, the reasonable fees and
disbursements of a single firm of outside counsel retained by Selling
Stockholders which beneficially own a majority of the total number of shares or
units of Common Stock or Common Stock Equivalents being registered by Selling
Stockholders (the
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32
"Majority Selling Stockholders"), and any and all filing fees payable to the
SEC, fees with respect to filings required to be made with stock exchanges, the
NASDAQ and the NASD, fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of a single firm of
outside counsel for the underwriters or the Majority Selling Stockholders in
connection with blue sky qualifications of the Common Stock or Common Stock
Equivalents being registered and determination of its eligibility for investment
under the laws of such jurisdictions as the Selling Stockholders may designate),
printing expenses, fees and disbursements of counsel and accountants of the
Company, including costs associated with comfort letters, and fees and expenses
of other Persons retained by the Company, but excluding underwriters' expenses
(including discounts, commissions or fees of underwriters and expenses included
therein, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the securities being registered or
legal expenses of any Person other than the Company and the Selling
Stockholders) but including the fees and expenses of any qualified independent
underwriter required to participate in such registration pursuant to applicable
law or the requirements of the NASD. The Company and its Subsidiaries shall, in
any event in all cases, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), and the expense of securities law liability
insurance and rating agency fees, if any.
4.8 Indemnification.
(a) Indemnification by the Company. In connection with any
registration pursuant hereto in which shares of Common Stock or Common Stock
Equivalents are to be disposed of, the Company shall indemnify and hold
harmless, to the full extent permitted by law, each holder of such Common Stock
or Common Stock Equivalents to be disposed of and, when applicable, its
officers, directors, agents and employees and each Person who controls such
holder (within the meaning of the Securities Act or the Exchange Act) against
all losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, including, without
limitation, any loss, claim, damage, liability or expense resulting from the
failure to keep a prospectus current, except insofar as the same (i) are caused
by or contained in any information relating to such holder furnished in writing
to the Company by such holder expressly for use therein or (ii) are caused by
such holder's failure to deliver a copy of the current prospectus simultaneously
with or prior to such sale after the Company has furnished such holder with a
sufficient number of copies of such prospectus correcting such material
misstatement or omission or (iii) arise in respect of any offers to sell or
sales made during any period when a holder is required to discontinue sales
under Section 4.3(e) (and after such holder has received in writing the notice
contemplated by Section 4.3(e)). The Company shall also indemnify underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each person
who controls such Persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the holders of
such Common Stock or Common Stock Equivalents to be disposed of, and shall enter
into an indemnification agreement with such Persons containing such terms, if
requested.
<PAGE> 49
33
(b) Indemnification by Stockholders. In connection with each
registration statement effected pursuant hereto in which shares of Common Stock
or Common Stock Equivalents are to be disposed of, each Selling Stockholder
shall, severally but not jointly, indemnify and hold harmless, to the full
extent permitted by law, the Company, each other Selling Stockholder and their
respective directors, officers, agents and employees and each Person who
controls the Company and each other Selling Stockholder (within the meaning of
the Securities Act or the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in such registration
statement or prospectus or preliminary prospectus or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue statement or omission relates to such Selling Stockholder and is
contained in any information furnished in writing by such Selling Stockholder or
any of its Affiliates to the Company expressly for inclusion in such
registration statement or prospectus. In no event shall the liability of any
Selling Stockholder hereunder be greater in amount than the dollar amount of the
proceeds actually received by such Selling Stockholder upon the sale of the
securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder shall give prompt notice to the indemnifying party of
any claim with respect to which it shall seek indemnification and shall permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the indemnifying party shall have agreed to pay such fees or expenses, or (ii)
the indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (iii) in the opinion of
outside counsel to such Person there may be one or more legal defenses available
to such Person which are different from or in addition to those available to the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). If such defense is not assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent (but such consent shall not be unreasonably withheld). No
indemnified party shall be required to consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a written
release in form and substance reasonably satisfactory to such indemnified party
from all liability in respect of such claim or litigation. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim shall
not be obligated to pay the fees and expenses of more than one firm of counsel
(and, if necessary, local counsel) for all parties indemnified by such
indemnifying party with respect to such claim, unless in the written opinion of
outside counsel to an indemnified party a conflict of interest as to the subject
matter exists between such indemnified party and another indemnified party with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel for such indemnified party.
<PAGE> 50
34
(d) Contribution. If for any reason the indemnification provided for
herein is unavailable to an indemnified party or is insufficient to hold it
harmless as contemplated hereby, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of any Selling Stockholder for
such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received by such Selling Stockholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
4.9 Participation in Underwritten Registrations. No Stockholder or
Permitted Transferee may participate in any underwritten registration hereunder
unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of
Common Stock or Common Stock Equivalents on the basis provided in and in
compliance with any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7
under the Exchange Act, and (b) completes and executes all questionnaires,
appropriate and limited powers of attorney, escrow agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements; provided that all such documents shall be
consistent with the provisions hereof.
4.10 Rule 144. The Company hereby covenants that after it has filed
(and such registration statement has become effective) a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of
Common Stock, the Company will file in a timely manner all reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any Stockholder, make publicly
available other information so long as necessary to permit sales by such
Stockholder under Rule 144 under the Securities Act) and will take such further
action as any Stockholder may reasonably request to the extent required from
time to time to enable such Stockholder to sell shares of Common Stock under
Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management
Investor shall Transfer shares of Common Stock under Rule 144 unless expressly
permitted to do so by the terms of this Agreement.
4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any
of its shares of Common Stock or Common Stock Equivalents is included in a
registration statement filed by the Company in connection with an underwritten
public offering it shall not effect any public sale or distribution of shares of
Common Stock or Common Stock Equivalents during the 30 days prior to or the 180
day period beginning on the effective date of such registration statement
(except as part of such registration) if and to the extent reasonably requested
in writing (with reasonable prior notice) by the managing underwriter of the
underwritten public offering.
(b) The Company agrees not to effect any primary public sale or
distribution of any Common Stock or Common Stock Equivalents, as the case may
be, during the 10 days prior to and the 180 day period beginning on the
effective date of any registration statement in which
<PAGE> 51
35
any Stockholder is participating in connection with an underwritten public
offering of Common Stock or Common Stock Equivalents, as the case may be, if and
to the extent reasonably requested in writing (with reasonable prior notice) by
the managing underwriter of the underwritten public offering.
4.12 Mezzanine Securities. Notwithstanding anything to the contrary
herein, the Company may grant registration rights to holders of Mezzanine
Securities which are more, as or less favorable to such holders than the
registration rights of the parties hereto. To the extent that Mezzanine
Securities consist of Common Stock or Common Stock Equivalents, holders of
Mezzanine Securities may be given the right by the Company to participate in
registrations as if such holders were Stockholders, and the Company shall not be
obliged hereunder to comply with any provision of this Section 4 in respect of a
registration of Mezzanine Securities.
SECTION 5. MISCELLANEOUS
5.1 Additional Securities Subject to Agreement. Each Stockholder
agrees that any other Securities which it shall hereafter acquire by means of a
stock split, stock dividend, distribution, exercise of stock options, or
otherwise (other than Mezzanine Securities or pursuant to a Public Offering or
Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the
same extent as if held on the date hereof.
5.2 Termination. Except as otherwise provided herein, this Agreement
shall terminate, and thereby become null and void, as to any particular
Securities, on the date on which they are sold in a Public Offering or are sold
pursuant to Rule 144 under the Securities Act (unless such Securities are
reacquired by a Stockholder).
5.3 Injunctive Relief. The Stockholders and their Permitted
Transferees acknowledge and agree that a violation of any of the terms of this
Agreement will cause the Stockholders and their Permitted Transferees
irreparable injury for which adequate remedy at law is not available.
Accordingly, it is agreed that each Stockholder and Permitted Transferee shall
be entitled to an injunction, restraining order or other equitable relief to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction in the
United States or any state thereof, in addition to any other remedy to which
they may be entitled at law or equity.
5.4 Other Stockholders' Agreements. None of the Stockholders shall
enter into any stockholder agreement or other arrangement of any kind with any
Person with respect to any Securities which is inconsistent with the provisions
of this Agreement or which may impair its ability to comply with this Agreement.
5.5 Amendments. This Agreement may be amended only by a written
instrument signed (a) by Vestar, so long as it or its Affiliates own Securities,
and (b) by Stockholders other than Vestar and its Affiliates which own on a
fully diluted basis Securities representing at least a majority of the voting
power represented by all Securities outstanding on a fully diluted basis and
owned by all Stockholders other than Vestar and its Affiliates.
<PAGE> 52
36
5.6 Successors, Assigns and Transferees. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their Permitted Transferees and their respective successors, each of
which Permitted Transferees shall agree, in a writing in form and substance
satisfactory to the Company and the owners on a fully diluted basis of
Securities representing at least a majority of the voting power represented by
all Securities outstanding on a fully diluted basis and owned by all
Stockholders, to become a party hereto and be bound to the same extent as its
transferor hereby, provided that no Stockholder may assign to any Permitted
Transferee any of its rights hereunder other than in connection with a Transfer
to such Permitted Transferee of Securities in accordance with the provisions of
this Agreement.
5.7 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or when delivered by a
recognized courier or, in the case of telecopy notice, when received, addressed
as follows to the parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
if to the Company, Sheridan or Vestar, to it:
c/o Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Facsimile: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Facsimile: (212) 455-2502
if to any other Stockholder, to such Stockholder at such
Stockholder's address or telecopy number set forth in the books
and records of the Company.
5.8 Integration. This Agreement and the documents referred to herein
or delivered pursuant hereto contain the entire understanding of the parties
with respect to the subject matter hereof and thereof. There are no agreements,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof and thereof other than those expressly set forth herein
and therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE> 53
37
5.9 Severability. If one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
5.11 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
except for matters directly within the purview of the General Corporation Law of
the State of Delaware (the "DGCL"), which shall be governed by the DGCL.
5.12 Jurisdiction. Any action to enforce, which arises out of or in
any way relates to, any of the provisions of this Agreement may be brought and
prosecuted in such court or courts located within the States of New York as
provided by law; and the parties consent to the jurisdiction of such court or
courts located within the States of New York and to service of process by
registered mail, return receipt requested, or by any other manner provided by
New York law.
5.13 Management Investors. Each employee or director of the Company
or any of its Subsidiaries who becomes party to a stock subscription agreement
or option agreement with any of the Company and its Subsidiaries after the date
hereof shall become a party hereto and shall be bound hereby. The Company shall
not issue any securities to an employee or director of the Company or any of its
Subsidiaries unless he or she enters into a supplementary agreement with the
Company agreeing to be bound by the terms hereof in the same manner as the other
Management Investors. Each such supplementary agreement shall become effective
upon its execution by the Company and such employee or director, and it shall
not require the signature or consent of any other party hereto. Such
supplementary agreement may modify some of the terms hereof as they effect such
employee or director; provided that the modified terms shall be no more
favorable to such employee or director than the terms set forth herein.
5.14 83(b) Election. Promptly after the Closing Date, each
Management Investor shall, with respect to all Securities beneficially owned by
such Management Investor, make a timely election under Section 83(b) of the Code
in accordance with applicable Regulations thereunder.
5.15 Management Investor Representative. Each Management Investor
hereby designates and appoints (and each Permitted Transferee of each such
Management Investor shall be deemed to have so designated and appointed)
Mitchell Eisenberg, with full power of substitution (the "Management Investor
Representative") as the representative of each such Person to perform all such
acts as are required, authorized or contemplated by this Agreement to
<PAGE> 54
38
be performed by any such Person and hereby acknowledges that the Management
Investor Representative shall be the only Person authorized to take any action
so required, authorized or contemplated by this Agreement by each such Person.
Each such Person further acknowledges that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive the
death or incapacity of such Person. Each such Person hereby authorizes (and each
Permitted Transferee shall be deemed to have authorized) the other parties
hereto to disregard any notice or other action taken by such Person pursuant to
this Agreement on any action so taken or any notice given by the Management
Investor Representative and are and will be entitled and authorized to give
notices only to the Management Investor Representative for any notice
contemplated by this Agreement to be given to any such Person. A successor to
the Management Investor Representative may be chosen by Management Investors
which own on a fully diluted basis Securities representing at least a majority
of the voting power represented by all Securities outstanding on a fully diluted
basis and owned by all Management Investors, provided that written notice
thereof is given by the successor to the Management Investor Representative to
the Company. Whenever any action or consent (but not any forbearance) is
required to be taken or given by the Management Investors, the action or consent
of the Management Investor Representative shall be considered the act or consent
of all the Management Investors, and Vestar and the Company shall be protected
in relying on such act or consent.
5.16 Covenant Not to Compete. (a) Each Management Investor who is
not a Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
non-competition provision hereby covenants and agrees that, except as provided
below, during the Term of Employment and the Non-Competition Period, the
Management Investor shall not, without the express written consent of the
Company, directly or indirectly, engage in any activity which is, or participate
or invest in or assist (whether as owner, part-owner, stockholder, partner,
director, officer, trustee, employee, agent, independent contractor or
consultant, or in any other capacity) any Competitive Enterprise, except that
the Management Investor may make passive investments in a Competitive Enterprise
the shares of which are publicly traded if such investment constitutes less than
one percent of the equity of such enterprise. Without implied limitation, the
forgoing covenant shall include hiring or attempting to hire for or on behalf of
any such Competitive Enterprise any officer or other employee of Sheridan or any
Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee
to terminate his or her relationship or employment with Sheridan or any
Affiliate of Sheridan, soliciting for or on behalf of any such Competitive
Enterprise any client or customer (including any Medical Customer) of Sheridan
or any Affiliate of Sheridan, and diverting to any Person, any client or
business opportunity of Sheridan or any Affiliate of Sheridan.
(b) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period, each
Management Investor who is not a Senior Management Investor and who is not a
party to a written employment agreement with the Company or any of its
Subsidiaries that contains a non-competition provision shall not devote any time
to consulting, lecturing or engaging in other self-employment or employment
activities without the prior written consent of Sheridan.
(c) This Section 5.16 shall survive the termination of this
Agreement.
<PAGE> 55
39
5.17 Business Opportunities. Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a business
opportunities provision agrees, while he is employed by any of the Company and
its Subsidiaries, to offer or otherwise make known or available to the Company
or any Subsidiary, as directed by the Company and without additional
compensation or consideration, any business prospects, contracts or other
business opportunities that he may discover, find, develop or otherwise have
available to him in any field in which the Company or any of its Affiliates is
engaged, and further agrees that any such prospects, contracts or other business
opportunities shall be the property of the Company.
5.18 Confidentiality. (a) Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
confidentiality provision acknowledges that the Management Investor has and will
necessarily become informed of, and have access to, certain valuable and
confidential information of the Company and its Affiliates, including, without
limitation, trade secrets, technical information, plans, lists of patients,
data, records, fee schedules, computer programs, manuals, processes, methods,
intangible rights, contracts, agreements, licenses, personnel information and
the identity of health care providers (collectively, the "Confidential
Information"), and that the Confidential Information, even though it may be
contributed, developed or acquired in whole or in part by the Management
Investor, is the Company's exclusive property to be held by the Management
Investor in trust and solely for the Company's benefit. Accordingly, except as
required by law, the Management Investor shall not, at any time, either during
or subsequent to the Term of Employment, use, reveal, report, publish, copy,
transcribe, Transfer or otherwise disclose to any person, corporation or other
entity, any of the Confidential Information without the prior written consent of
the Company, except to responsible officers and employees of the Company and its
Subsidiaries and other responsible persons who are in a contractual or fiduciary
relationship with the Company or one of its Subsidiaries and except for
information which legally and legitimately is or becomes of general public
knowledge from authorized sources other than the Management Investor.
(b) Upon the termination of the Term of Employment, each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a confidentiality provision shall promptly deliver to the Company all
property and possessions of the Company and its Subsidiaries, including all
drawings, manuals, letters, notes, notebooks, reports, copies, deliverable
Confidential Information and all other materials relating to the Company's and
its Subsidiaries' business which are in the Management Investor's possession or
control.
5.19 Effectiveness. This Agreement shall become effective on the
Closing Date.
<PAGE> 56
40
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg
---------------------------------
Name: Mitchell Eisenberg
VESTAR/CALVARY INVESTORS, LLC
By: VESTAR CAPITAL PARTNERS III, L.P.,
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
<PAGE> 57
/s/ Mitchell Eisenberg
--------------------------------------
MITCHELL EISENBERG
/s/ Lewis D. Gold
--------------------------------------
LEWIS D. GOLD
/s/ Michael F. Schundler
--------------------------------------
MICHAEL F. SCHUNDLER
/s/ Jay a. Martus
--------------------------------------
JAY A. MARTUS
/s/ Gilbert L. Drozdow
--------------------------------------
GILBERT L. DROZDOW
<PAGE> 58
SCHEDULE 1
INITIAL OTHER
MANAGEMENT INVESTORS
GILBERT L. DROZDOW
<PAGE> 59
Exhibit B
Vestar/Calvary Holdings, Inc.
1999 Stock Option Plan
SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary
Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional
officers, key employees and outside directors of, and consultants to, the
Company and its Subsidiaries and (ii) enabling such individuals to participate
in the long-term growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean any entity that, directly or indirectly, is
controlled by, controls or is under common control with, the Company.
"Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Option, which may, but need
not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the earlier to occur of (x) the date
of the sale or disposition, in one or a series of related transactions, of
all or substantially all of the assets of the Company to any "person" or
"group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the
Exchange Act), other than Vestar, or (y) the date of the sale, exchange or
other disposition by Vestar and its Affiliates, in one or a series of
transactions (including, without limitation, by way of merger,
reorganization, recapitalization, consolidation, Public Offering (as
defined in the Stockholders' Agreement), sale of capital stock or assets
of Sheridan or any other Subsidiary of the Company or similar transaction
that results in the disposition, directly or indirectly, of the equity
interests of Vestar and its Affiliates (other than the Management
Investors) in the Company) (collectively, an "Exit Transaction") of 70% or
more of the sum of (1) their equity interest in the Company immediately
following the Closing Date (as defined in the Stockholders'sAgreement)
plus (2) any additional capital contributions to, or investments in, the
Company made by any of Vestar and its Affiliates after the Closing Date
(clauses (1) and (2), collectively, the "Aggregate Investment"); provided
that, in the case of (y) either (A) the consideration received by Vestar
and its Affiliates in the Exit Transaction for 70% or more of the
Aggregate Investment is cash or securities that are distributed in kind to
the limited partners of Vestar Capital Partners III, L.P. and its
Affiliates or a combination thereof or (B) the Exit Transaction results in
(i) designees of Vestar and its Affiliates not constituting a majority of
the Board of Directors (or analogous governing body) of the Company and
(ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding
<PAGE> 60
2
securities of the Company entitled to vote generally in the election of
directors (or members of an analogous governing body) of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the compensation committee of the Board, or
such other committee of the Board as may be designated by the Board to
administer the Plan.
"Company" shall have the meaning specified in the Stockholders'
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall have the meaning specified in the
Stockholders' Agreement.
"Management Investor" shall have the meaning specified in the
Stockholders' Agreement.
"Option" shall mean a right to purchase Shares from the Company that
is granted under Section 6 of the Plan.
"Participant" shall mean any officer, key employee or outside
director of, or consultant to, the Company or its Subsidiaries eligible
for an Option under Section 5 of the Plan and selected by the Committee to
receive an Option under the Plan.
"Performance Option" shall mean an Option granted under the Plan
which becomes exercisable, or for which the period of exercisability is
accelerated, upon the satisfaction of certain performance criteria
established by the Committee and set forth in the Award Agreement
evidencing such option.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock
Option Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by
the SEC under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the staff thereof.
"Shares" shall mean (i) shares or units of Common Stock (as defined
in the Stockholders' Agreement) or (ii) as may be determined by the
Committee pursuant to Section 4(b).
<PAGE> 61
3
"Stockholders' Agreement" shall mean the Agreement, dated as of
March 24, 1999, among the Company and the other parties identified
therein.
"Subsidiary" shall mean any entity that, directly or indirectly,
is controlled by the Company.
"Substitute Options" shall have the meaning specified in Section
4(c).
"Time Option" shall mean an Option granted under the Plan, which is
not a Performance Option, and which becomes exercisable over time based on
a Participant's continued employment with the Company or its Subsidiaries.
"Vestar" shall mean Vestar Capital Partners III, L.P. and any of
its Affiliates.
SECTION 3. Administration. (a) The Plan shall be administered by the
Committee. Subject to the terms of the Plan, any Award Agreement and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Options to be
granted to a Participant; (iii) determine the number of Shares to be covered by,
or with respect to which payments, rights, or other matters are to be calculated
in connection with, Options; (iv) determine the terms and conditions of any
Option; (v) determine whether, to what extent, and under what circumstances
Options may be settled or exercised in cash, Shares, other securities, other
Options or other property, or canceled, forfeited, or suspended and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Options, other property, and other amounts
payable with respect to an Option shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret,
administer, reconcile any inconsistency, correct any default and/or supply any
omission in the Plan and any instrument or agreement relating to, or Option made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan and subject to the
terms of any Award Agreement, all designations, determinations, interpretations,
and other decisions under or with respect to the Plan or any Option shall be
within the sole discretion of the Committee, may be made at any time and shall
be final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Option, and any
holder of Shares.
(c) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option
hereunder.
<PAGE> 62
4
SECTION 4. Shares Available for Options.
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
the aggregate number of Shares with respect to which Options may be granted
under the Plan shall be 1,150,000; provided, however, that in no event shall the
number of Shares subject to Time Options granted under the Plan exceed 666,667.
If, after the effective date of the Plan, any Shares covered by an Option
granted under the Plan, or to which such an Option relates, are forfeited, or if
an Option has expired, terminated or been cancelled for any reason whatsoever
(other than by reason of exercise or vesting), then the Shares covered by such
Option shall again be, or shall become, Shares with respect to which Options may
be granted hereunder.
(b) Adjustments. In the event that the Committee determines that any Exit
Transaction, dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee in its
discretion to be necessary or appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it in good faith
deems equitable, adjust any or all of (i) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Options may be granted, (ii) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
subject to outstanding Options, and (iii) the exercise price with respect to any
Option or, if deemed appropriate in connection with a Change of Control, make
provision for an immediate cash payment to the holder of an outstanding Option
in consideration for the cancellation of such Option in an amount equal to the
excess, if any, of the Fair Market Value of the Shares subject to the Options
over the aggregate exercise price of such Option.
(c) Substitute Options. Options may be granted, in the discretion of the
Committee, under the Plan in assumption of, or in substitution for, outstanding
awards previously granted by a company acquired by the Company or with which the
Company combines ("Substitute Options"). The number of Shares underlying any
Substitute Options shall be counted against the aggregate number of Shares
available for Options under the Plan.
(d) Sources of Shares Deliverable Under Options. Any Shares delivered
pursuant to an Option may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any officer, key employee or outside director of,
or consultant to, the Company or any of its Subsidiaries (including any
prospective officer or key employee) shall be eligible to be designated a
Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Options shall
be granted, the
<PAGE> 63
5
number of Shares to be covered by each Option, the exercise price therefor and
the conditions and limitations applicable to the exercise of the Option. None of
the Options granted under the Plan are intended to meet the requirements of
Section 422 of the Code or any successor provision thereto.
(b) Exercise Price. The Committee shall establish the exercise price at
the time each Option is granted, which exercise price shall be set forth in the
applicable Award Agreement.
(b) Exercise. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award Agreement or, with the consent of the
Participant thereafter. The Committee may impose such conditions with respect to
the exercise of Options, including without limitation, any relating to the
application of federal or state securities laws, as it may deem necessary or
advisable.
(c) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Such payment shall be made in cash or by bank check or,
subject to the consent of the Committee in its sole discretion, in Shares which
have been owned by the Participant for at least six months, such Shares to be
valued at their Fair Market Value as of the date of exercise.
SECTION 7. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that any such amendment, alteration, suspension, discontinuance or termination
that would impair the rights of any Participant or any holder or beneficiary of
any Option theretofore granted shall not to that extent be effective without the
consent of the affected Participant, holder or beneficiary.
(b) Amendments to Options. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Option theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment or
alteration that would impair the rights of any Participant or any holder or
beneficiary of any Option theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary. In addition, with the consent of any Participant, holder or
beneficiary, the Company may suspend, discontinue, cancel or terminate any
Option theretofore granted, prospectively or retroactively
(c) Adjustment of Options Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the performance criteria applicable to outstanding Performance Options in the
event of any extraordinary and nonrecurring events affecting the Company or its
Subsidiaries, or the financial statements of the Company or its Subsidiaries, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines in good faith that such adjustments are necessary in
order to prevent dilution or enlargement of rights under such Performance
Options.
<PAGE> 64
6
SECTION 8. Change of Control. In the event of a Change of Control after
the date of the adoption of this Plan, (i) any outstanding Time Options then
held by Participants, which are unexercisable or otherwise unvested, shall
automatically be deemed exercisable or otherwise vested, as the case may be, as
of immediately prior to such Change of Control and (ii) any outstanding
Performance Options, whether exercisable or not, then held by Participants,
shall continue to be governed by the terms of each such Participant's Award
Agreement.
SECTION 9. General Provisions.
(a) Nontransferability.
(i) Each Option shall be exercisable only by the Participant during the
Participant's lifetime, or, if permissible under applicable law, by the
Participant's legal guardian or representative. No Option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant otherwise than by will or by the laws of descent and distribution
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(ii) Notwithstanding the foregoing, the Committee may in the applicable
Award Agreement evidencing an Option granted under the Plan or at any time
thereafter in an amendment to an Award Agreement provide that Options granted
hereunder may be transferred by the Participant to whom such Option was granted
(the "Grantee") without consideration, subject to such rules as the Committee
may adopt to preserve the purposes of the Plan, to:
(A) the Grantee's spouse, children or grandchildren (including
adopted and stepchildren and grandchildren) (collectively, the "Immediate
Family");
(B) a trust solely for the benefit of the Grantee and his or her
Immediate Family; or
(C) a partnership or limited liability company whose only partners
or members are the Grantee and his or her Immediate Family members;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); provided that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the requirements
of the Plan and any applicable Award Agreement evidencing the Option.
The terms of any Option transferred in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee and any
reference in the Plan or in an Award Agreement to an optionee, Grantee or
Participant shall be deemed to refer to the Permitted Transferee, except
that (a) Permitted Transferees shall not be entitled to transfer any
Options, other than by will or the laws of descent and distribution; (b)
Permitted Transferees shall not be entitled to exercise any transferred
Options unless
<PAGE> 65
7
there shall be in effect a registration statement on an
appropriate form covering the Shares to be acquired pursuant to the
exercise of such Option if the Committee determines that such a
registration statement or form is necessary or appropriate, (c) the
Committee or the Company shall not be required to provide any notice to a
Permitted Transferee, provided all required notices are given to the
Grantee and (d) the consequences of termination of the Grantee's
employment by, or services to, the Company or any of its Affiliates under
the terms of the Plan and the applicable Award Agreement shall continue to
be applied with respect to the Grantee, following which the Options shall
be exercisable by the Permitted Transferee only to the extent, and for the
periods, specified in the Plan and the applicable Award Agreement.
(b) No Rights to Options. No Participant or other Person shall have any
claim to be granted any Option, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Options. The terms and
conditions of Options and the Committee's determinations and interpretations
with respect thereto need not be the same with respect to each Participant
(whether or not such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other securities of
the Company delivered under the Plan pursuant to any Option or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or other
securities are then listed, any applicable Federal or state laws, and any
applicable written agreements between Vestar and/or the Company and the
Participants including, without limitation, the Stockholders' Agreement, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(d) Withholding.
(i) A Participant shall be required to pay to the Company or any
Affiliate and the Company shall have the right and is hereby authorized to
withhold, any applicable withholding taxes in respect of an Option, its exercise
or any payment or transfer under an Option or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such withholding taxes.
(ii) Notwithstanding any provision of this Plan to the contrary, in
connection with the transfer of an Option to a Permitted Transferee pursuant to
Section 9(a) of the Plan, the Grantee shall remain liable for any withholding
taxes required to be withheld upon the exercise of such Option by the Permitted
Transferee.
(e) Award Agreements. Each Option hereunder shall be evidenced by an Award
Agreement, which shall be delivered to the Participant and shall specify the
terms and conditions of the Option and any rules applicable thereto, including
but not limited to the effect on such Option of the death, disability or
termination of employment or service of a Participant, and the effect, if any,
of such other events as may be determined by the Committee.
(f) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other
<PAGE> 66
8
compensation arrangements, which may, but need not, provide for the grant of
options (subject to stockholder approval if such approval is required), and such
arrangements may be either generally applicable or applicable only in specific
cases.
(g) No Right to Employment. The grant of an Option shall not be construed
as giving a Participant the right to be retained in the employ of, or in any
consulting relationship to, the Company or any Affiliate. Further, the Company
or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(h) No Rights as Stockholder. Subject to the provisions of the applicable
Option, no Participant or holder or beneficiary of any Option shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares.
(i) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of New York.
(j) Severability. If any provision of the Plan or any Option is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Option, or would disqualify the Plan or any Option under any
law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Option, such provision shall be stricken
as to such jurisdiction, Person or Option and the remainder of the Plan and any
such Option shall remain in full force and effect.
(k) Other Laws. The Committee may refuse to issue or transfer any Shares
or other consideration under an Option if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration will violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Option shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Option granted hereunder shall be construed as an offer to
sell securities of the Company, and no such offer shall be outstanding, unless
and until the Committee in its sole discretion has determined that any such
offer, if made, would be in compliance with all applicable requirements of the
U.S. federal and any other applicable securities laws.
(l) No Trust or Fund Created. Neither the Plan nor any Option shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Option, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
<PAGE> 67
9
(m) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(n) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the persons and/or entities who own, immediately after giving effect
to the Effective Time (as defined in the Agreement and Plan of Merger dated as
of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and
Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding
stock of the Company, determined in a manner consistent with Section 280G(b)(5)
of the Internal Revenue Code of 1986, as amended and the proposed regulations
promulgated thereunder. If such approval is not obtained, this Plan and any
Options granted under the Plan shall be null and void and of no force and
effect.
(b) Expiration Date. No Option shall be granted under the Plan after
December 31, 2009. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Option granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Option or to waive any conditions or rights under any such
Option shall, continue after December 31, 2009.
SECTION 11. Awards Subject to Stockholders' Agreement.
Options granted under the Plan and any Shares delivered upon the exercise
or settlement of any Options granted hereunder shall be subject to the
Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement
as it may be amended from time to time are hereby incorporated herein by
reference. In the event of a conflict between any term or provision contained
herein and any terms or provisions of the Stockholders' Agreement, the
applicable provisions of the Stockholders' Agreement will govern and prevail.
<PAGE> 68
Exhibit C
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
PERFORMANCE OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - ----------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 69
2
(a) Time Vesting.
Subject to paragraphs (b), (c) and (d) of this Section 2, the Option
shall vest and become exercisable in full on the ninth anniversary of the
purchase of shares of common stock of Sheridan pursuant to the Offer (the date
of such purchase being the "Purchase Date").
(b) Accelerated Vesting Based Upon Performance.
(i) Subject to the Participant's continued employment with the
Company, the Option shall vest and become exercisable on an accelerated basis
with respect to up to twenty-five percent (25%) of the Shares initially covered
by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting
Shares") on each of the first, second, third and fourth anniversaries of the
Purchase Date (each an "Accelerated Vesting Date") as follows:
(A) With respect to each Accelerated Vesting Date, 100% of
the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity
Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending
immediately prior to the applicable Accelerated Vesting Date (such last day of
the fiscal year being referred to as the "Determination Date") equals or exceeds
the Maximum Annual Price Target (described below) for such Determination Date;
(B) With respect to each Accelerated Vesting Date, 0% of the
Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per
Share as of the applicable Determination Date is less than or equal to the
Minimum Annual Price Target (described below) for such Determination Date; and
(C) With respect to each Accelerated Vesting Date, if the
Common Equity Per Share as of the Determination Date is less than the Maximum
Annual Price Target and greater than the Minimum Annual Price Target for such
Determination Date, then the number of Scheduled Accelerated Vesting Shares
which shall vest will equal the product of (x) 100% of the Scheduled Accelerated
Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall
equal the quotient obtained by dividing (A) the excess of the Value of Common
Equity Per Share as of the Determination Date over the Minimum Annual Price
Target for such Determination Date by (B) the excess of the Maximum Annual Price
Target as of the Determination Date over the Minimum Annual Price Target for
such Determination Date.
(ii) In the event that the Option does not vest on an accelerated
basis with respect to all of the Scheduled Accelerated Vesting Shares on an
Accelerated Vesting Date solely as a result of the failure to achieve or exceed
the applicable Maximum Annual Price Target, then the number of Scheduled Vesting
Shares with respect to which the Option did not vest on an accelerated basis
(the "Missed Shares"), will be available for vesting on the next succeeding
Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The
number of Missed Shares, if any, which will vest on an accelerated basis on the
Make-Up Vesting Date will equal the excess, if any, of (x) the number of
Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the
Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of
Scheduled Accelerated Vesting Shares which actually vested on an accelerated
basis on the immediately preceding Accelerated Vesting Date.
<PAGE> 70
3
<TABLE>
<CAPTION>
Determination Minimum Maximum
Vesting Date Date Annual Price Target Annual Price Target
- - ------------ ---- ------------------- -------------------
<S> <C> <C> <C> <C>
1st anniversary of FY Ending
Purchase Date 12/31/99 $10.18 $10.64
2nd anniversary of FY Ending
Purchase Date 12/31/00 $12.21 $13.83
3rd anniversary of FY Ending
Purchase Date 12/31/01 $14.65 $17.98
4th anniversary of FY Ending
Purchase Date 12/31/02 $17.58 $23.37
5th anniversary of FY Ending $21.10 $30.38
Purchase Date 2/31/03
(Used for 4th
anniversary
missed shares only)
</TABLE>
The determination of the Value of Common Equity Per Share for each fiscal
year shall be made by the Board in good faith based upon, and immediately
following receipt of, the audited financial statements for such fiscal year and
will be calculated (after giving effect to the issuance of all Time Options and
all Performance Options which have previously vested or which will vest in such
fiscal year) pursuant to the methodology outlined in Exhibit A.
(c) Termination of Employment
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability (as
each such term is defined in Section 3(a) below), and the Minimum Annual Price
Target for the Determination Date applicable to the next succeeding Accelerated
Vesting Date is exceeded as of such Determination Date, then the Option shall,
upon the Board's determination that the Minimum Annual Price Target for such
Determination Date has been exceeded, become vested with respect to, and the
Vested Portion of the Option shall include a number of Shares (the "Termination
Shares") equal to the sum of:
(i) the product of (A) the number of Scheduled Accelerated Vesting
Shares that would otherwise have vested pursuant to Section 2(b)(i) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) a fraction, the numerator of which is the
number of days that passed since the immediately preceding Accelerated Vesting
Date through and including the date of the Participant's
<PAGE> 71
4
termination of employment and the denominator of which is 365 (the "Termination
Fraction"); plus
(ii) If there were Missed Shares with respect to the immediately
preceding Accelerated Vesting Date, the product of (A) the number of Missed
Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) the Termination Fraction.
(d) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control, the Option shall, to the extent not previously
cancelled, immediately become vested and exercisable with respect to the
Scheduled Accelerated Vesting Shares for any remaining future Accelerated
Vesting Dates, if, and only if, in connection with the Change of Control, Vestar
receives aggregate proceeds, in cash, securities or a combination of cash and
securities, having an aggregate Fair Market Value in an amount equal to or in
excess of the product of (i) Vestar's Aggregate Investment (as defined below)
times (ii) the Minimum Investment Multiple (as defined below) applicable to the
fiscal year of the Company in which such Change of Control occurs; provided
that, securities received by Vestar shall be taken into account for purposes
hereof only if such securities are distributed by Vestar, in kind, to its
limited partners.
For purposes of this Agreement:
"Vestar's Aggregate Investment" shall mean the total amount of capital
invested by Vestar in the Company and its Subsidiaries, including investments
made in connection with the Offer, the Merger contemplated by the Merger
Agreement, or otherwise; and
"Minimum Investment Multiple" shall mean with respect to the Company's
fiscal years ending December 31, 1999 through December 31, 2003 as follows:
<TABLE>
<CAPTION>
FY In Which Change of Control Occurs Minimum Investment Multiple
- - ------------------------------------ ---------------------------
<S> <C> <C>
1999 1.22
2000 1.66
2001 2.12
2002 2.50
2003 3.26
</TABLE>
For purposes of this Section 2(d), "Fair Market Value"shall mean,
solely with respect to securities distributed by Vestar to its limited partners,
the value of such securities as reported by Vestar to such limited partners.
3. Exercise of Option.
<PAGE> 72
5
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability and, with respect to the
Termination Shares, if applicable, 30 days after the determination of the
number of Termination Shares, if later;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason and,
with respect to the Termination Shares, if applicable, 30 days after the
determination of the number of Termination Shares, if later; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in effect as of or after the Date of Grant (as the
same may be amended in accordance with the terms thereof) or if not
defined therein or if there shall be no such agreement, "Cause" shall
exist if a Participant has (i) committed an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against Vestar, Sheridan, the
Company or any Subsidiary or a felony involving the business, assets,
customers or clients of Vestar, Sheridan, the Company or any Subsidiary or
has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material
breach of any written confidentiality, non-compete, non-solicitation or
business opportunity covenant contained in any agreement entered into by
the Participant and Vestar, Sheridan, the Company or any of their
Affiliates; (iii) substantially failed to perform the Participant's duties
to Sheridan, the Company or any Subsidiary, including by committing a
material breach of any written covenant contained in any agreement entered
into by the Participant and Vestar, Sheridan, the Company or any
Subsidiary (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been
remedied within a reasonable time specified by Sheridan (it being
understood that Sheridan can act on behalf of its Affiliates) that is not
less than thirty (30) days after delivery to the Participant by Sheridan
of written notice thereof; or (iv) breached the Participant's obligations
pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse
policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to
<PAGE> 73
6
time, or if there shall be no plan or if not defined therein, the
Participant's becoming physically or mentally incapacitated and consequent
inability for a period of six (6) months in any twelve (12) consecutive
month period to perform the Participant's duties to Sheridan, the Company
or any Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option
may be exercised by delivering to the Company at its principal office written
notice of intent to so exercise; provided that, the Option may be exercised with
respect to whole Shares only. Such notice shall specify the number of Shares for
which the Option is being exercised and shall be accompanied by payment in full
of the Exercise Price. The payment of the Exercise Price shall be made in cash
or, subject to the consent of the Committee, in Shares which have been owned by
the Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this
Agreement to the contrary, the Option may not be exercised prior to the
completion of any registration or qualification of the Option or the Shares that
is required to comply with appliicable state and federal securities or any
ruling or regulation of any governmental body or national securities exchange
that the Committee shall in its sole discretion determine in good faith to be
necessary or advisable.
(iii) Upon the Company's determination that the Option has
been validly exercised as to any of the Shares, the Company shall issue
certificates in the Participant's name for such Shares. However, the Company
shall not be liable to the Participant for damages
<PAGE> 74
7
relating to any delays in issuing the certificates to him, any loss of the
certificates, or any mistakes or errors in the issuance of the certificates or
in the certificates themselves.
(iv) In the event of the Participant's death, the Vested
Portion of the Option shall remain exercisable by a Permitted Transferee, the
Participant's executor or administrator, or the person or persons to whom the
Participant's rights under this Agreement shall pass by will or by the laws of
descent and distribution as the case may be, to the extent set forth in Section
3(a). Any heir or legatee of the Participant shall take rights herein granted
subject to the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant
shall become a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this
Agreement shall be construed as giving the Participant the right to be retained
in the employ of, or in any consulting relationship to, the Company or any
Affiliate. Further, the Company or an Affiliate may at any time dismiss the
Participant or discontinue any consulting relationship, free from any liability
or any claim under the Plan or this Agreement, except as otherwise expressly
provided herein.
5. Legend on Certificates. To the extent provided by the
Stockholders' Agreement, the certificates representing the Shares purchased by
exercise of the Option shall contain a legend stating that they are subject to
the Stockholders' Agreement and may be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause an additional
legend or legends to be put on any such certificates to make appropriate
reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant.
Notwithstanding the foregoing, the Participant may transfer all or
any portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer
<PAGE> 75
8
under an Option or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to
the exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering
into this Agreement the Participant agrees and acknowledges that the Participant
has received and read a copy of the Plan and the Stockholders' Agreement. The
Option is subject to the Plan and the Stockholders' Agreement. The terms and
provisions of the Plan and the Stockholders' Agreement as they may be amended
from time to time in accordance with their respective terms are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan or the
Stockholders' Agreement, the applicable terms and provisions of the Plan or the
Stockholders' Agreement, as applicable, will govern and prevail. In the event of
a conflict between any term or provision of the Plan and any term or provision
of the Stockholders' Agreement, the applicable terms and provisions of the
Stockholders' Agreement will govern and prevail.
<PAGE> 76
9
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
---------------------------
Agreed and acknowledged as of the date first above written:
- - -------------------------
<PAGE> 77
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS
ARE SUBJECT TO ACCELERATED VESTING
STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements
for the year, the Company shall calculate (and the Board of Directors shall
review and approve) EBITDA in good faith pro forma to give effect to all
acquisitions and divestitures completed during the year as if they had occurred
on January 1 of such year.
STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated
in Step 1) by 7.5.
STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value
(calculated in Step 2), deduct year-end balances for Total Debt and Other
Obligations, add year-end balance for Total Cash and add Total Option Proceeds.
For purposes of this calculation, Other Obligations includes any debt-like
instruments such as acquisition-related non-compete, consulting or stock price
guarantee payments as well as non-convertible preferred stock and
out-of-the-money convertible securities. Total Option Proceeds should include
options proceeds related to i) all time-based options (whether or not vested),
ii) all performance-based options that have vested in prior years and iii) all
performance-based options that vest in current year.
STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number
of shares outstanding at the beginning of the year, ii) shares issued in current
year for any reason, including those related to acquisitions, iii) all
time-based options (whether or not vested), iv) all performance-based options
that vest in prior years or in the current year, v) shares associated with
in-the-money convertible preferred stock and vi) shares associated with other
in-the-money common stock equivalents including, but not limited to, warrants
and any other options.
STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common
Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step
4). In Step 6, this number will be compared with the maximum and minimum targets
listed below to determine how many (if any) performance-based options vest in
current year.
STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR.
Multiply the number of options eligible for accelerated vesting in current year
pursuant to the Performance Option Plan by i) if the Value of Common Equity per
Share (Step 5) is greater than or equal to current year's Maximum Annual Price
Target, 100%; ii) if the Value of Common Equity per Share is less than or equal
to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common
Equity per Share is between current year's Minimum and Maximum Annual Price
Targets, the quotient calculated by dividing (A) excess of the Value of Common
Equity per Share over current year's Minimum Annual Price Target by (B) the
excess of current year's Maximum Annual Price Target over current year's Minimum
Annual Price Target.
<TABLE>
<CAPTION>
Minimum Annual Price Maximum Annual Price Target
Year Target
---------- -------------------- -----------------------------
<S> <C> <C>
1999 $10.18 $10.64
2000 12.21 13.83
2001 14.65 17.98
2002 17.58 23.37
2003 21.10 30.38
</TABLE>
<PAGE> 78
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST
PURSUANT TO PERFORMANCE MEASURES
<TABLE>
<CAPTION>
======================================================================
1999 2000 2001 2002 2003
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8
EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5
---------------------------------------------------------------------
Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3
Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6)
Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6
---------------------------------------------------------------------
Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3
Beginning # of Shares 7.317 10.105 10.225 10.346 10.467
Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000
Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000
Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000
Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000
Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000
---------------------------------------------------------------------
Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467
Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24
% appreciation 42.1% 32.9% 42.0% 34.3% 27.7%
ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38
% APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0%
ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10
% APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
</TABLE>
(a) Represents full year EBITDA adjusted to give effect to all current year
acquisitions and divestitures as if they occurred on January 1.
(b) For purposes of calculating Total Enterprise Value at the end of any year,
the EBITDA multiple shall be 7.5x.
(c) Other Obligations include any debt-like instruments such as
acquisition-related noncompete, consulting or stock price guarantee payments
as well as non-convertible preferred stock and out-of-the-money convertible
securities.
(d) Option proceeds assume exercise of all vested in-the-money options,
including those options available for current year vesting. In this example,
assumes all options have exercise price of $9.25.
(e) For purposes of calculating value of common equity per share on this
schedule, all time-based options are deemed vested and exercised.
(f) 483,333 performance options are available for grant. At Closing, 333,333 of
such options will be granted to existing members of management. The
remaining 150,000 options will be reserved for future grant. This example
assumes that all 483,333 are granted.
(g) Assumes a June 30, 1999 closing. If calculated value of common equity per
share exceeds the maximum annual share price target for that year, then 100%
of eligible options will vest (0.121 million in this example).
(h) Assumes a June 30, 1999 closing. If calculated value of common equity per
share is below the minimum annual share price target for that year, then 0%
of eligible options will vest (0.000 million in this example).
<PAGE> 79
Exhibit D
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
TIME OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - --------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 80
2
(a) Time Vesting.
Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest
and become exercisable with respect to twenty percent (20%) of the Shares
initially covered by the Option on each of the first, second, third, fourth and
fifth anniversaries (each such anniversary being a "Vesting Date") of the
purchase of shares of common stock of Sheridan pursuant to the Offer.
(b) Termination of Employment.
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability, the
Option shall, as of the date of such termination, become vested with respect to,
and the Vested Portion of the Option shall include, that portion of the Option
which would otherwise have vested on the next Vesting Date.
(c) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control the Option shall, to the extent not then vested
and not previously canceled, immediately become fully vested and exercisable.
3. Exercise of Option.
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in
<PAGE> 81
3
effect as of or after the Date of Grant (as the same may be amended in
accordance with the terms thereof) or if not defined therein or if there
shall be no such agreement, "Cause" shall exist if a Participant has (i)
committed an act of fraud, embezzlement, misappropriation or breach of
fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or
a felony involving the business, assets, customers or clients of Vestar,
Sheridan, the Company or any Subsidiary or has been convicted by a court
of competent jurisdiction or has plead guilty or nolo contendere to any
other felony; (ii) committed a material breach of any written
confidentiality, non-compete, non-solicitation or business opportunity
covenant contained in any agreement entered into by the Participant and
Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Participant's duties to Sheridan, the
Company or any Subsidiary, including by committing a material breach of
any written covenant contained in any agreement entered into by the
Participant and Vestar, Sheridan, the Company or any Subsidiary (other
than a confidentiality, non-compete, non-solicitation or business
opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty
(30) days after delivery to the Participant by Sheridan of written notice
thereof; or (iv) breached the Participant's obligations pursuant to
Sheridan's, the Company's or any Subsidiary's substance abuse policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to time, or
if there shall be no plan or if not defined therein, the Participant's
becoming physically or mentally incapacitated and consequent inability for
a period of six (6) months in any twelve (12) consecutive month period to
perform the Participant's duties to Sheridan, the Company or any
Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
<PAGE> 82
4
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option may be
exercised by delivering to the Company at its principal office written notice of
intent to so exercise; provided that, the Option may be exercised with respect
to whole Shares only. Such notice shall specify the number of Shares for which
the Option is being exercised and shall be accompanied by payment in full of the
Exercise Price. The payment of the Exercise Price shall be made in cash or,
subject to the consent of the Committee, in Shares which have been owned by the
Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this Agreement to
the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares that is required to
comply with applicable state and federal securities or any ruling or regulation
of any governmental body or national securities exchange that the Committee
shall in its sole discretion determine in good faith to be necessary or
advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss of the certificates, or any mistakes or errors in the issuance
of the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested Portion of the
Option shall remain exercisable by a Permitted Transferee, the Participant's
executor or administrator, or the person or persons to whom the Participant's
rights under this Agreement shall pass by will or by the laws of descent and
distribution as the case may be, to the extent set forth in Section 3(a). Any
heir or legatee of the Participant shall take rights herein granted subject to
the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant shall become
a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this Agreement
shall be construed as giving the Participant the right to be retained in the
employ of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an Affiliate may at any time dismiss the Participant or
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.
5. Legend on Certificates. To the extent provided by the Stockholders'
Agreement, the certificates representing the Shares purchased by exercise of the
Option shall
<PAGE> 83
5
contain a legend stating that they are subject to the Stockholders' Agreement
and may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which such Shares are listed, and any applicable Federal or state laws, and the
Committee may cause an additional legend or legends to be put on any such
certificates to make appropriate reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant
Notwithstanding the foregoing, the Participant may transfer all or any
portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate, and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer under an Option or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be addressed
to the Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering into
this Agreement the Participant agrees and acknowledges that the Participant has
received and read a copy of the Plan and the Stockholders' Agreement. The Option
is subject to the Plan and the
<PAGE> 84
6
Stockholders' Agreement. The terms and provisions of the Plan and the
Stockholders' Agreement as they may be amended from time to time in accordance
with their respective terms are hereby incorporated herein by reference. In the
event of a conflict between any term or provision contained herein and a term or
provision of the Plan or the Stockholders' Agreement, the applicable terms and
provisions of the Plan or the Stockholders' Agreement, as applicable, will
govern and prevail. In the event of a conflict between any term or provision of
the Plan and any term or provision of the Stockholders' Agreement, the
applicable terms and provisions of the Stockholders' Agreement will govern and
prevail.
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
------------------------------
Agreed and acknowledged as of the date
first above written:
- - ------------------------------
<PAGE> 1
SUBSCRIPTION AND TENDER AGREEMENT
SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999
(this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware
corporation (the "Company"), and the individual named on the signature page
hereto (the "Stockholder").
WHEREAS, concurrently herewith, the Company, Vestar/Calvary,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation
("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the
date hereof (the "Merger Agreement") pursuant to which, among other things,
Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $.01 per share, and Class A Common
Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common
Stock") and (y) to merge (the "Merger") into Sheridan;
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and make the Offer, the Company and Acquisition have required
the Stockholder and certain other Management Investors referred to below to
enter into this Agreement and the other Stockholder Documents referred to in the
Merger Agreement;
WHEREAS, the Stockholder has agreed, among other things, to
tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan
Common Stock owned by him as of the date hereof and all shares of Sheridan
Common Stock, if any, acquired by him after the date hereof and prior to the
expiration of the Offer (the "Tender Shares");
WHEREAS, on the terms and subject to the conditions hereof,
the Stockholder desires to subscribe for and acquire from the Company, and the
Company desires to issue and sell to the Stockholder, the number of shares of
common stock, par value $.01 per share, of the Company ("Common Stock") set
forth on Schedule I hereto, as hereinafter set forth;
WHEREAS, this Agreement is one of several agreements being entered into
by the Company on or after the date hereof with certain persons who are or will
be key employees of the Company or one of its subsidiaries (collectively with
the Stockholder, the "Management Investors");
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Subscription for and Purchase of Common Stock.
1.1. Purchase of Common Stock. Pursuant to the terms and
subject to the conditions set forth in this Agreement, the Stockholder hereby
subscribes for and agrees to purchase, and the Company hereby agrees to issue
and sell to the Stockholder, on the Closing
<PAGE> 2
2
Date (as defined in Section 1.3) the number of shares of Common Stock set forth
on Schedule I hereto at a price per share and for the aggregate amount in cash
(the "Purchase Price") set forth on Schedule I hereto.
1.2. Sales of Common Stock to Employees Only. Notwithstanding
anything in this Agreement to the contrary, the Company shall have no obligation
to issue, sell or deliver any shares of Common Stock to any person (i) who is
not a full-time employee of, or consultant to, the Company or any of its
subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in
which such issuance, sale or delivery to such person would constitute a
violation of the securities or "blue sky" laws of such jurisdiction.
1.3. The Closing. The closing (the "Closing") of the purchase
of Common Stock hereunder shall take place on the date (the "Closing Date") that
Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and
at such time as the Company shall direct on at least one business day's prior
notice to the Stockholder. The Closing shall occur at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such
other place as the parties may mutually agree. At the Closing, the Stockholder
(or the Stockholder's representative) shall deliver to the Company the Purchase
Price, payable by delivery of the amount set forth on Schedule I hereto, by
delivery of a certified check or by wire transfer in immediately available
funds.
1.4. Conditions to the Obligations of the Parties. (a) The
obligations of the Company under this Section 1 shall be subject to the
conditions that (i) the Stockholder shall have executed and delivered the
Stockholders Agreement dated as of the date hereof among the Company and its
stockholders party thereto in substantially the form attached hereto as Exhibit
A (the "Stockholders Agreement"), (ii) the representations and warranties of the
Stockholder in Section 2 of this Agreement shall be true and correct as of the
Closing Date in all material respects and (iii) the Stockholder shall not have
breached his obligations under Section 3 hereof.
(b) The obligations of the Stockholder under this Section 1
shall be subject to the conditions that (i) the Company shall have executed and
delivered the Stockholders Agreement and (ii) the representations and warranties
of the Company in Section 1.5 of this Agreement shall be true and correct as of
the Closing Date in all material respects.
1.5. Representations and Warranties of the Company. The
Company represents and warrants to the Stockholder as follows:
(a) the Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to execute and deliver this Agreement and the
Stockholders Agreement and to perform its obligations hereunder and thereunder.
The execution, delivery and performance by the Company of this Agreement and the
Stockholders Agreement has been duly authorized by all necessary corporate and
legal action by the Company, and no other corporate proceeding by the Company is
necessary for the execution, delivery and performance by the Company of this
Agreement or the Stockholders Agreement. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Company and, assuming
they are duly executed and delivered by the Stockholder,
<PAGE> 3
3
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
(b) the Common Stock to be issued to the Stockholder pursuant
to this Agreement, when issued and delivered in accordance with the terms
hereof, will be duly and validly issued and, upon receipt by the Company of the
Purchase Price therefor, will be fully paid and nonassessable with no personal
liability attached to the ownership thereof and will not be subject to any
preemptive rights under the Delaware General Corporation Law; and
(c) the execution, delivery and performance by the Company of
this Agreement and the Stockholders Agreement will not (i) conflict with the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or (iii) conflict with or violate any law, rule,
regulation, ordinance, writ, injunction, judgment or decree applicable to the
Company or any of its subsidiaries or by which any of their assets may be bound
or affected.
2. Representations, Warranties and Covenants of the Stockholder.
2.1. Residence and Competency; Power; Enforceability;
Noncontravention. The Stockholder is competent to and has sufficient capacity to
execute and deliver this Agreement and the Stockholders Agreement and to perform
his obligations hereunder and thereunder. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Stockholder.
Assuming the due execution and delivery of this Agreement and
the Stockholders Agreement by the Company, this Agreement and the Stockholders
Agreement constitute valid and binding obligations of the Stockholder,
enforceable against the Stockholder in accordance with their terms.
The execution, delivery and performance of this Agreement and
the Stockholders Agreement by the Stockholder will not (i) conflict with or
violate any law, rule, regulation, ordinance, writ, injunction, judgment or
decree applicable to the Stockholder or by which any of his assets may be bound
or affected or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Stockholder is a party or by which the Stockholder is bound.
2.2. Investment Intention; No Resales. The Stockholder hereby
represents and warrants that he is acquiring the Common Stock for investment
solely for his own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof. The Stockholder agrees and
acknowledges that he will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock,
or solicit any offers to purchase or otherwise acquire or pledge any shares of
Common Stock, unless such offer, transfer, sale, assignment, pledge,
hypothecation or other disposition complies with the provisions hereof and of
the Stockholders Agreement.
<PAGE> 4
4
2.3. Common Stock Unregistered. The Stockholder acknowledges
and represents that he has been advised by the Company that:
(a) the offer and sale of the Common Stock have not been and
will not be registered under the Securities Act;
(b) the Common Stock must be held indefinitely and the
Stockholder must continue to bear the economic risk of the investment in the
Common Stock unless the offer and sale of such Common Stock is subsequently
registered under the Securities Act and all applicable state securities laws or
an exemption from such registration is available;
(c) there is no established market for the Common Stock and it
is not anticipated that there will be any public market for the Common Stock in
the foreseeable future;
(d) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities of the Company,
and, except as set forth in the Stockholders Agreement, the Company has made no
covenant to make such Rule available;
(e) when and if shares of Common Stock may be disposed of
without registration under the Securities Act in reliance on Rule 144, such
disposition can be made only in limited amounts in accordance with the terms and
conditions of such Rule;
(f) if the Rule 144 exemption is not available, public offer
or sale of Common Stock without registration will require compliance with some
other exemption under the Securities Act;
(g) if any shares of Common Stock are at any time disposed of
in accordance with Rule 144, the Stockholder will deliver to the Company at or
prior to the time of such disposition an executed Form 144 (if required by Rule
144) and such other documentation as the Company may reasonably require in
connection with such sale;
(h) a restrictive legend in the form set forth in the
Stockholders Agreement shall be placed on the certificates representing Common
Stock; and
(i) a notation shall be made in the appropriate records of the
Company indicating that the Common Stock is subject to restrictions on transfer
and, if the Company should at some time in the future engage the services of a
securities transfer agent, appropriate stop-transfer instructions will be issued
to such transfer agent with respect to the Common Stock.
2.4. Additional Investment Representations. The Stockholder
represents and warrants that:
(a) the Stockholder's financial situation is such that he can
afford to bear the economic risk of holding the Common Stock for an indefinite
period of time, has adequate means for providing for his current needs and
personal contingencies, and can afford to suffer a complete loss of his
investment in the Common Stock;
<PAGE> 5
5
(b) the Stockholder's knowledge and experience in financial
and business matters are such that he is capable of evaluating the merits and
risks of the investment in the Common Stock, as contemplated by this Agreement;
(c) the Stockholder understands that the Common Stock is a
speculative investment which involves a high degree of risk of loss of his
investment therein, there are substantial restrictions on the transferability of
the Common Stock and, on the Closing Date and for an indefinite period following
the Closing, there will be no public market for the Common Stock and,
accordingly, it may not be possible for the Stockholder to liquidate his
investment in case of emergency, if at all;
(d) the terms of the Stockholders Agreement provide that in
the event that the Stockholder ceases to be an employee of Sheridan, the
Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their
designated affiliates have the right to repurchase the Common Stock at a price
which may, in certain circumstances, be less than the fair market value of such
stock;
(e) the Stockholder understands and has taken cognizance of
all the risk factors related to the purchase of Common Stock and, other than as
set forth in this Agreement, no representations or warranties have been made to
the Stockholder or his representatives concerning the Common Stock or the
Company, its subsidiaries or their prospects or other matters;
(f) in making his decision to purchase the Common Stock hereby
subscribed for, the Stockholder has relied upon independent investigations made
by him and, to the extent believed by the Stockholder to be appropriate, his
representatives, including his own professional, financial, tax and other
advisors;
(g) the Stockholder has been given the opportunity to examine
all documents and to ask questions of, and to receive answers from, the Company
and its representatives concerning the Company and its subsidiaries and the
terms and conditions of the purchase of the Common Stock and to obtain any
additional information, in each case as the Stockholder or his representatives
deems necessary;
(h) all information which the Stockholder has provided to the
Company and its representatives concerning the Stockholder and his financial
position is complete and correct as of the date of this Agreement; and
(i) the Stockholder is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act.
3. Agreements Relating to Tender Shares.
3.1. Agreement to Tender. The Stockholder hereby agrees to
validly tender pursuant to the Offer and not withdraw from the Offer all Tender
Shares; provided that the Merger Agreement has not been terminated.
3.2. Voting of Tender Shares. The Stockholder hereby agrees,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, to vote all Tender
<PAGE> 6
6
Shares (a) in favor of the adoption of the Merger Agreement and the approval of
the transactions contemplated thereby and (b) against any action or agreement
that would result in a breach of any representation, warranty, covenant or
agreement of the Company contained in the Merger Agreement or would impede,
interfere with, delay or prevent the consummation of the Merger or the purchase
of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall
not, so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, purport to vote (or execute a written consent with respect
to) Tender Shares other than in accordance with this Agreement or grant any
proxy or power of attorney with respect to Tender Shares, deposit any Tender
Shares into a voting trust, or enter into any agreement, arrangement or
understanding with any person (other than this Agreement), directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of Tender Shares, or agree to do any of the foregoing.
3.3. Disposition of Tender Shares. The Stockholder shall not,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise
encumber, any Tender Shares after the date hereof (except to tender Tender
Shares to Acquisition pursuant to the Offer), or agree to do any of the
foregoing.
3.4. Stop Transfer Order. The Stockholder hereby agrees to
cause Sheridan's transfer agent to be notified that there is a stop transfer
order (except to tender Tender Shares to Acquisition pursuant to the Offer) with
respect to all Tender Shares so long as the Stockholder is required to tender
Tender Shares pursuant to Section 3.1 hereof.
4. Options.
4.1. Adoption of Option Plan. Immediately following the
Effective Time (as defined in the Merger Agreement), the Company shall duly
adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially
the form attached hereto as Exhibit B.
4.2. Grant of Performance Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Performance Option Agreement in substantially the form attached hereto as
Exhibit C pursuant to which the Stockholder will be granted performance options
to purchase the number of shares of Common Stock set forth opposite his name on
Schedule II hereto at an exercise price equal to the per share price paid by the
Stockholder for Common Stock pursuant hereto. Following such due execution and
delivery thereof, the Performance Option Agreement shall constitute a valid and
binding obligation of each of the Company and the Stockholder, enforceable
against each of the Company and the Stockholder in accordance with its terms.
4.3. Grant of Time Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Time Option Agreement in substantially the form attached hereto as Exhibit D
pursuant to which the Stockholder will be granted time options to purchase the
number of shares of Common Stock set forth opposite his name on Schedule II
hereto at an exercise price equal to the per share price paid by the Stockholder
for Common Stock pursuant hereto. Following such due execution and delivery
thereof, the Time Option Agreement shall constitute a valid and binding
obligation of each of the Company and the Stockholder, enforceable against each
of the Company and the Stockholder in accordance with its terms.
<PAGE> 7
7
5. Miscellaneous.
5.1. Recapitalizations, Exchanges, Etc., Affecting Common
Stock. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to Common Stock, to any and all shares of capital
stock of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution for Common Stock, by reason of
any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Upon the occurrence of any of such events, amounts hereunder shall be
appropriately adjusted, in good faith, by the Board of Directors of the Company.
5.2. Stockholder's Employment by the Company. Nothing
contained in this Agreement shall be deemed to obligate the Company or any
subsidiary of the Company to employ the Stockholder in any capacity whatsoever
or to prohibit or restrict the Company (or any such subsidiary) from terminating
the employment, if any, of the Stockholder at any time or for any reason
whatsoever, with or without Cause (as defined in the Stockholders Agreement).
5.3. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. No assignment of any of
the rights or obligations of the Stockholder shall be permitted except as
expressly contemplated hereby; any purported assignment in violation of this
provision shall be null and void ab initio.
5.4. Amendment; Waiver. This Agreement may be amended only by
a written instrument signed by the parties hereto. No waiver by either party
hereto of any of the provisions hereof shall be effective unless set forth in a
writing executed by the party so waiving.
5.5. Governing Law. This Agreement shall be governed by and
construed in all respects under the laws of the State of New York. Any action to
enforce which arises out of or in any way relates to any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located
within the State of New York as provided by law; and the parties consent to the
jurisdiction of such court or courts located within the State of New York and to
service of process by registered mail, return receipt requested, or by any other
manner provided by New York law.
5.6. Notices. Any notices or communications permitted or
required hereunder shall be deemed sufficiently given if hand-delivered, or sent
by (x) registered or certified mail return receipt requested, (y) telecopy or
other electronic transmission service (to the extent receipt is confirmed) or
(z) by overnight courier, in each case to the parties at their respective
addresses and telecopy numbers set forth below, or to such other address of
which any party may notify the other party in writing.
<PAGE> 8
8
(a) If to the Company, to it at the following address:
Vestar/Calvary Holdings, Inc.
c/o Vestar Capital Partners
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Telecopy: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Telecopy: (212) 455-2502
(b) If to the Stockholder, to him at his address or telecopy
number as shown on the stock register of the Company.
5.7. Integration. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
5.8. Counterparts. This Agreement may be executed in two or
more counterparts, and by different parties on separate counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
5.9. Injunctive Relief. The Stockholder, on behalf of himself
and his permitted transferees, and the Company, on its own behalf and on behalf
of its successors and assigns, each acknowledges and agrees that a violation of
any of the terms of this Agreement will cause the other irreparable injury for
which adequate remedy at law is not available. Accordingly, it is agreed that
the Company or the Stockholder, as the case may be, shall be entitled to an
injunction, restraining order or other equitable relief to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which it or he may be
entitled at law or equity.
5.10. Rights to Negotiate. Nothing in this Agreement shall be
deemed to restrict or prohibit the Company from purchasing shares of Common
Stock from the Stockholder at any time upon such terms and conditions and at
such price as may be mutually agreed upon between the Company and the
Stockholder, whether or not at the time of such purchase circumstances exist
<PAGE> 9
9
which specifically grant the Company the right to purchase, or the Stockholder
the right to sell, shares of Common Stock pursuant to the terms of this
Agreement or the Stockholders Agreement.
5.11. Rights Cumulative; Waiver. The rights and remedies of
the Stockholder and the Company under this Agreement shall be cumulative and not
exclusive of any rights or remedies which either would otherwise have hereunder
or at law or in equity or by statute, and no failure or delay by either party in
exercising any right or remedy shall impair any such right or remedy or operate
as a waiver of such right or remedy, nor shall any single or partial exercise of
any power or right preclude such party's other or further exercise or the
exercise of any other power or right. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
VESTAR CALVARY HOLDINGS, INC.
By: /s/ James L. Elrod, Jr.
---------------------------------
Name: James L. Elrod, Jr.
Title: President
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
STOCKHOLDER:
/s/ Lewis D. Gold
Lewis D. Gold
<PAGE> 12
LEWIS D. GOLD
SCHEDULE I
Number of Shares Purchase Price Aggregate Purchase
of Common Stock Per Share Price Payable
- - --------------- --------- -------------
135,135** Per share price paid by Acquisition $1,249,998.75
for Sheridan Common Stock
pursuant to the Offer
** Assuming a purchase price per share of $9.25.
<PAGE> 13
LEWIS D. GOLD
SCHEDULE II
Number of Shares Subject Number of Shares Subject
to Time Options to Performance Options
- - --------------- ----------------------
216,666 108,334
<PAGE> 14
Exhibit (c) (2)
EXECUTION COPY
================================================================================
STOCKHOLDERS AGREEMENT
dated as of March 24, 1999
among
VESTAR/CALVARY HOLDINGS, INC.,
SHERIDAN HEALTHCARE, INC.,
VESTAR/CALVARY INVESTORS, LLC,
MITCHELL EISENBERG,
LEWIS D. GOLD,
MICHAEL F. SCHUNDLER,
JAY A. MARTUS
and
THE OTHER MANAGEMENT INVESTORS
================================================================================
<PAGE> 15
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.......................................................1
1.1 Defined Terms.....................................................1
1.2 Other Definitional Provisions; Interpretation....................10
SECTION 2. VOTING AGREEMENTS................................................11
2.1 Election of Directors............................................11
2.2 Other Voting Matters.............................................12
SECTION 3. TRANSFERS AND ISSUANCES..........................................12
3.1 Transfers to be Made Only as Permitted or
Required by this Agreement ......................................12
3.2 Permitted Transfers..............................................13
3.3 Effect of Void Transfers.........................................13
3.4 Legend on Securities.............................................13
3.5 Tag-Along Rights.................................................14
3.6 Public Offerings, etc. ..........................................15
3.7 Drag-Along Rights................................................16
3.8 Rights of First Refusal..........................................16
3.9 Participation Right..............................................18
3.10 Partial Transfers Following a Qualified Public Offering..........19
3.11 Partial Transfers to Cover Option-Related Tax Payments...........19
3.12 Transfers to Other Management Investors. .......................20
3.13 Call Right.......................................................20
3.14 Put Right........................................................22
SECTION 4. REGISTRATION RIGHTS..............................................24
4.1 Demand Registration..............................................24
4.2 Incidental Registration..........................................25
4.3 Registration Procedures..........................................27
4.4 Underwritten Offerings...........................................30
4.5 Preparation; Reasonable Investigation............................31
4.6 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants.....................................31
4.7 Expenses.........................................................32
4.8 Indemnification..................................................33
4.9 Participation in Underwritten Registrations......................34
4.10 Rule 144.........................................................35
4.11 Holdback Agreements..............................................35
4.12 Mezzanine Securities.............................................35
SECTION 5. MISCELLANEOUS....................................................36
5.1 Additional Securities Subject to Agreement.......................36
-i-
<PAGE> 16
5.2 Termination......................................................36
5.3 Injunctive Relief................................................36
5.4 Other Stockholders' Agreements...................................36
5.5 Amendments.......................................................36
5.6 Successors, Assigns and Transferees..............................36
5.7 Notices..........................................................36
5.8 Integration......................................................37
5.9 Severability.....................................................37
5.10 Counterparts.....................................................37
5.11 Governing Law....................................................38
5.12 Jurisdiction.....................................................38
5.13 Management Investors.............................................38
5.14 83(b) Election...................................................38
5.15 Management Investor Representative...............................38
5.16 Covenant Not to Compete..........................................39
5.17 Business Opportunities...........................................39
5.18 Confidentiality..................................................40
5.19 Effectiveness....................................................40
SCHEDULE 1 - Initial Other Management Investors
-ii-
<PAGE> 17
STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among
Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan
Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors,
LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis
D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior
Management Investors") and the other persons listed on Schedule 1 hereto
(collectively, together with the persons identified in the supplementary
agreements referred to in Section 5.13 hereof, the "Other Management
Investors"). The Senior Management Investors and the Other Management Investors
are collectively referred to herein as the "Management Investors".
W I T N E S S E T H :
WHEREAS, the Company, the Senior Management Investors and the Other
Management Investors listed on Schedule 1 hereto have entered into subscription
and tender agreements dated as of the date hereof (the "Subscription and Tender
Agreements");
WHEREAS, pursuant to the Subscription and Tender Agreements and on
the terms and subject to the conditions set forth therein, the Senior Management
Investors and the Other Management Investors listed on Schedule 1 hereto have
agreed to purchase shares of common stock of the Company;
WHEREAS, the Company, Sheridan, Vestar and the Management Investors
desire to make certain arrangements among themselves with respect to matters set
forth herein; and
WHEREAS, it is a condition to the consummation of the closings under
the Subscription and Tender Agreements that this Agreement (as defined below)
shall have been duly authorized, executed and delivered by each of the parties
hereto and be in full force and effect;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, terms defined in the
headings and the recitals shall have their respective assigned meanings, and the
following capitalized terms shall have the meanings ascribed to them below:
"Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company.
"Affiliate" means, with respect to any Person, (i) any Person that
directly or indirectly controls, is controlled by or is under common control
with, such Person, or (ii) any director, officer, partner or employee of such
Person or any Person specified in clause (i) above, or
(iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or
sibling of any Person specified in clause (i) or (ii) above.
<PAGE> 18
2
"Aggregate Investment" shall have the meaning ascribed to such term
in the definition of "Lapse Date."
"Agreement" means this Stockholders Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Applicable Percentage" shall mean (i) for the period from the
Closing Date through the day immediately preceding the first anniversary of the
Closing Date, 0%, (ii) for the period from the first anniversary of the Closing
Date through the date immediately preceding the second anniversary of the
Closing Date, 25%, (iii) for the period from the second anniversary of the
Closing Date through the day immediately preceding the third anniversary of the
Closing Date, 50%, (iv) for the period from the third anniversary of the Closing
Date through the day immediately preceding the fourth anniversary of the Closing
Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%.
"Business Day" means a day other than a Saturday, Sunday, holiday or
other day on which commercial banks in New York City or Miami, Florida are
authorized or required by law to close.
"Call Notice" shall have the meaning ascribed to such term in
Section 3.13(a).
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Management Investor and the Company or any of
its Subsidiaries which is in effect as of or after the Closing Date (as the same
may be amended in accordance with the terms thereof) or, if not defined therein
or if there shall be no such agreement, "Cause" shall exist if a Management
Investor has (i) committed an act of fraud, embezzlement, misappropriation or
breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary
of the Company or Sheridan or a felony involving the business, assets, customers
or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan or has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material breach
of any written confidentiality, non-compete, non-solicitation or business
opportunity covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Management Investor's duties to Sheridan,
the Company or any Subsidiary, including by committing a material breach of any
written covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty (30)
days after delivery to the Management Investor by Sheridan of written notice
thereof; or (iv) breached the Management Investor's obligations pursuant to
Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's
substance abuse policy.
"Closing Date" shall have the meaning ascribed to such term in the
Subscription and Tender Agreements.
<PAGE> 19
3
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute. Any reference herein to a particular
provision of the Code shall mean, where appropriate, the corresponding provision
in any successor statute.
"Columbia" means the hospitals and ambulatory surgical facilities
owned by Columbia/HCA Healthcare, Inc.
"Common Stock" means the common stock of the Company or common
equity securities, or securities exchangeable or exercisable for or convertible
into common equity securities, of any Person into or for which Common Stock is
converted, exchanged or received in an Exit Transaction.
"Common Stock Equivalents" means any stock, warrants, rights, calls,
options or other securities exchangeable or exercisable for or convertible into
Common Stock.
"Company" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include any Person who, in connection
with an Exit Transaction, becomes the issuer of Common Stock.
"Competitive Enterprise" means any Person the activities, products
or services of which (A) are competitive with activities, products or services
of the Company or any of its Controlled Entities (as defined in the Merger
Agreement) in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Management Investor's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services, including without
limitation, the provision of anesthesia services, pain management services,
emergency room services, primary medical care services, neonatology,
perinatology and radiology services; (2) the provision of Payor Services; (3)
the provision of administrative services for medical services and Payor
Services, including without limitation, quality assurance services, utilization
management services, billing services, recruitment services and medical
management information services; or (4) the provision of services or products of
any nature to Columbia.
"Confidential Information" shall have the meaning ascribed to such
term in Section 5.18(a).
"Cost" means the purchase price per share of Common Stock paid by
the applicable Management Investor determined by dividing (x) the total purchase
price paid by such Management Investor on the date of purchase of such share by
(y) the number of shares of Common Stock purchased by such Management Investor
on such date, as adjusted by the Board of Directors of the Company in good faith
and on a consistent basis to reflect Exit Transactions and stock splits, stock
dividends, recapitalizations and other similar transactions.
"Cost Securities" shall have the meaning ascribed to such term in
Section 3.13(f).
"Custody Agreement and Power of Attorney" shall have the meaning
ascribed to such term in Section 4.2(c)
<PAGE> 20
4
"DGCL" shall have the meaning ascribed to such term in Section 5.11.
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Management Investor and the Company or
any of its Subsidiaries which is in effect as of or after the Closing Date (as
the same may be amended in accordance with the terms thereof) or, if not defined
therein or if there shall be no such agreement, as defined in Sheridan's
long-term disability plan as in effect from time to time or if, there shall be
no plan or if not defined therein, the Management Investor's becoming physically
or mentally incapacitated and consequent inability for a period of six (6)
months in any twelve (12) consecutive month period to perform the Management
Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the
Company.
"Effective Time" shall have the meaning ascribed to such term in the
Merger Agreement.
"Exit Transaction" shall have the meaning ascribed to such term in
the definition of "Lapse Date."
"Equity Interests" shall have the meaning ascribed to such term in
Section 3.9(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
"Fair Market Value" shall mean, as of any date of determination,
with respect to shares of Common Stock, (x) prior to a Qualified Public
Offering, the fair market value of the shares, disregarding any discount for
minority interest, restrictions on transfer of the shares or lack of
marketability of the shares, as determined in good faith and on a consistent
basis by the Board of Directors of the Company, giving due consideration to,
among other things, the earnings and other financial and operating information
of the Company, Sheridan and its Subsidiaries in recent periods, the future
prospects of the Company, Sheridan and its Subsidiaries, the general condition
of the securities markets and the fair market value of securities of companies
of a similar size and engaged in businesses similar to the business of the
Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public
Offering, the price per share of Common Stock equal to the average of the last
sales price of a share of Common Stock on each of the last five trading days
prior to the date of determination (the "FMV Calculation Period") on each
exchange on which the Common Stock may at the time be listed or, if there shall
have been no sales on any of such exchanges during the FMV Calculation Period,
the average of the closing bid and asked prices on each such exchange on each
day during the FMV Calculation Period or, if there are no such bid and asked
prices during the FMV Calculation Period, on the next preceding five dates on
which such bid and asked prices occurred or, if Common Stock shall not be so
listed, the average of the closing sales prices as reported by NASDAQ during the
FMV Calculation Period in the over-the-counter market.
"Family Group" shall have the meaning ascribed to such term in
Section 3.2(a).
<PAGE> 21
5
"Financing Default" shall mean an event which constitutes (or which
with notice or lapse of time or both would constitute) an event of default
(which event of default has not been cured or waived) under any of the following
as originally entered into or as they may be amended from time to time: (i) any
agreement or instrument under which indebtedness of any of the Company and its
Subsidiaries is outstanding as of the time of the aforementioned event, and any
extensions, renewals, refinancings or refundings thereof in whole or in part;
(ii) any provision of the Company's or any of its Subsidiaries' certificates of
incorporation or other organizational documents as in effect on the date hereof;
(iii) any amendment of, supplement to or other modification of any of the
instruments referred to in clauses (i) or (ii) above; and (iv) any of the
securities issued pursuant to or whose terms are governed by the terms of any of
the agreements set forth in clauses (i) and (ii) above, and any extensions,
renewals, refinancings or refundings thereof in whole or in part.
"FMV Calculation Period" shall have the meaning ascribed to such
term in the defined term "Fair Market Value".
"Good Reason" shall mean, if the Management Investor has entered
into an employment agreement with Sheridan, the Company or any of its
Subsidiaries which is in effect as of or after the Closing Date (as the same may
be amended in accordance with the terms hereof) the occurrence of such events
which, under the terms of such employment agreement, would expressly enable the
Management Investor to resign from employment and be treated under such
employment agreement as though the Management Investor's employment had been
terminated by the Company without "cause" or, if the employment agreement does
not include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of
Sheridan or the Company has failed to pay the Management Investor his salary;
(ii) the office where the Management Investor performs his duties is moved more
than 30 miles from where the Management Investor performed the Management
Investor's duties on the Closing Date; (iii) a substantial reduction of the
Management Investor's base salary (other than an across the board reduction
similarly affecting other comparable employees of Sheridan, the Company or its
Subsidiaries) or a substantial diminution of the Management Investor's duties,
which, in each case, has not been remedied within a reasonable time specified by
the Management Investor that is not less than thirty (30) days after delivery to
Sheridan of written notice describing the event constituting Good Reason.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Health Care Provider" means any physician, nurse, technician or
allied health care provider providing medical services on behalf of Sheridan or
any of its Affiliates on a full or part-time basis as an independent contractor
or consultant.
"Initial Call Period" shall have the meaning ascribed to such term
in Section 3.13(f).
<PAGE> 22
6
"Initial Public Offering" means the first Public Offering occurring
after the date hereof.
"Issuance" shall have the meaning ascribed to such term in Section
3.9(a).
"Junior Subordinated Note" shall have the meaning ascribed to such
term in Section 3.13(g).
"Lapse Date" means the earlier of (x) the fifth anniversary of the
Closing Date and (y) the date of the sale, exchange or other disposition by
Vestar and its Affiliates, in one or a series of transactions (including,
without limitation, by way of merger, reorganization, recapitalization,
consolidation, sale of capital stock or assets of Sheridan or any other
Subsidiary of the Company, or similar transaction that results in the
disposition, directly or indirectly, of the equity interests of Vestar and its
Affiliates (other than the Management Investors) in the Company) (collectively,
an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in
the Company immediately following the Closing Date plus (2) any additional
capital contributions to, or investments in, the Company made by any of Vestar
and its Affiliates after the Closing Date (clauses (1) and (2), collectively,
the "Aggregate Investment"); provided that, in the case of clause (y), either
(A) the consideration received by Vestar and its Affiliates in the Exit
Transaction for 70% or more of the Aggregate Investment is cash or securities
that are distributed in kind to the limited partners of Vestar Capital Partners
III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction
results in (i) designees of Vestar and its Affiliates not constituting a
majority of the Board of Directors (or analogous governing body) of the Company
and (ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding securities of the Company entitled to vote generally in the election
of directors (or members of an analogous governing body) of the Company.
"Majority Selling Stockholders" shall have the meaning ascribed to
such term in Section 4.7.
"Management Investors" shall have the meaning ascribed to such term
in the preamble to this Agreement.
"Management Investor Offeree" shall have the meaning ascribed to
such term in Section 3.8(a).
"Manager Investor Representative" shall have the meaning ascribed to
such term in Section 5.15.
"Management Investor's Transfer Group" shall have the meaning
ascribed to such term in Section 3.8(a).
"Measurement Date" shall have the meaning ascribed to such term in
Section 3.10.
<PAGE> 23
7
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs, PHOs,
MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals,
clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid
intermediaries.
"Merger" shall have the meaning ascribed to such term in the Merger
Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated as
of the date hereof among Sheridan, the Company and Acquisition, as the same may
be amended, supplemented or otherwise modified from time to time, pursuant to
which, among other things, Acquisition will merge into Sheridan, with Sheridan
constituting the surviving corporation.
"Mezzanine Securities" means securities of the Company, excluding
Common Stock, but including preferred stock and warrants to purchase Common
Stock, issued to any of Vestar and its Affiliates prior to the Effective Time,
and any securities into or for which such securities are exchangeable.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"No Call Notice" shall have the meaning ascribed to such term in
Section 3.13(e).
"No ROFR Notice" shall have the meaning ascribed to such term in
Section 3.8(g).
"Non-Competition Period" means with respect to each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a non-competition provision, the period commencing on the last day of
the Term of Employment and ending on the first anniversary of the last day of
the Term of Employment.
"Offeror" shall have the meaning ascribed to such term in Section
3.8(a).
"Option" means any option to acquire Common Stock or other capital
stock of the Company, including without limitation, all options granted under
the Company's 1999 Stock Option Plan.
"Option Shares" means all Common Stock or other capital stock of the
Company received by a Management Investor upon the exercise or other settlement
of an Option.
"Other Capital Stock" shall have the meaning ascribed to such term
in Section 3.9(a)(i).
"Other Capital Stock Equivalents" shall have the meaning ascribed to
such term in Section 3.9(a)(ii).
<PAGE> 24
8
"Other Management Investors" shall have the meaning ascribed to such
term in the preamble to this Agreement.
"Payor Services" means payor services in the area of managed care,
third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs,
capitation pools and other similar arrangements.
"Permitted Payment" shall have the meaning ascribed to such term in
Section 3.13(g).
"Permitted Transferee" has the meaning ascribed to such term in
Section 3.2(a).
"Person" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust, unincorporated
association, joint venture, Governmental Authority or other entity of any nature
whatsoever.
"Public Offering" means the sale of Securities to the public
pursuant to an effective registration statement filed under the Securities Act.
"Purchased Shares" shall mean, with respect to each Management
Investor, those shares of Common Stock that are purchased by the Management
Investor from the Company (as adjusted in good faith and on a consistent basis
by the Board of Directors of the Company to reflect Exit Transactions and stock
splits, stock dividends, recapitalizations and other similar transactions),
other than pursuant to the exercise of an Option.
"Put Notice" shall have the meaning ascribed to such term in Section
3.14(a).
"Qualified Public Offering" shall mean the sale of Common Stock to
the public after the Effective Time pursuant to an effective registration
statement filed under the Securities Act, which, together with any earlier
registered public sales of Common Stock under the Securities Act occurring after
the Effective Time, results in aggregate gross proceeds to the Company or its
stockholders, or both, of at least $50 million.
"Regulations" means the regulations promulgated under the Code.
"Request" shall have the meaning ascribed to such term in Section
4.1(a).
"Requesting Stockholder" shall have the meaning ascribed to such
term in Section 4.1(a).
"Right" shall have the meaning ascribed to such term in Section
3.9(a).
"Securities" means shares of Common Stock or Common Stock
Equivalents or other securities of the Company, other than (i) debt securities
that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each
case whether owned on the date hereof or hereafter acquired.
<PAGE> 25
9
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"SEC" means the Securities and Exchange Commission.
"Selling Stockholder" shall have the meaning ascribed to such term
in Section 4.3(c).
"Senior Management Investors" shall have the meaning ascribed to
such term in the preamble to this Agreement.
"Sheridan" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include its successors by means of a
merger, consolidation, reorganization, recapitalization or similar transaction.
"Stockholders" means Vestar, the Management Investors, and their
respective Permitted Transferees.
"Subscription and Tender Agreements" shall have the meaning ascribed
to such term in the recitals to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or fifty percent (50%) or more of the
equity interest therein, is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Tag Notice" shall have the meaning ascribed to such term in Section
3.5(b).
"Tagging Stockholder" shall have the meaning ascribed to such term
in Section 3.5(a).
"Term of Employment" means with respect to each Management Investor
who is not a Senior Management Investor and who is not a party to a written
employment agreement with the Company or any of its Subsidiaries that contains a
non-competition provision, any time during the period in which such Management
Investor is employed by the Company or any of its Subsidiaries.
"Third Party" means any Person other than the Company, the
Stockholders and their Affiliates.
"Transfer" means any transfer, sale, assignment, distribution,
exchange, mortgage, pledge, hypothecation or other disposition of any Securities
or any interest therein, including transfers by operation of law in connection
with a merger transaction or otherwise.
<PAGE> 26
10
"Transfer Notice" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Offer" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Securities" shall have the meaning ascribed to such term
in Section 3.8(a).
"Vestar" shall have the meaning ascribed to such term in the
preamble to this Agreement.
"Vested Purchased Shares" shall mean at any time, the number of
Purchased Shares initially acquired by a Management Investor (as adjusted in
good faith and on a consistent basis by the Board of Directors of the Company to
reflect Exit Transactions and stock splits, stock dividends, recapitalizations
and other similar corporate transactions) times the Applicable Percentage.
1.2 Other Definitional Provisions; Interpretation. (a) The words
"hereof", "herein", and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Subsection, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(b) The headings in this Agreement are included for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of this Agreement.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) For purposes of comparing the beneficial ownership of any Person
on the date of execution and delivery of this Agreement to the level of such
ownership at any later time, the level of ownership on such later date shall be
adjusted to eliminate the effect of any subdivision of the Common Stock, any
combination of the Common Stock, any issuance of Common Stock or Common Stock
Equivalents by reason of any reclassification (including, without limitation,
any reclassification in connection with a merger or consolidation), or any
dividend payable in Common Stock or Common Stock Equivalents.
SECTION 2. VOTING AGREEMENTS
2.1 Election of Directors. (a) Each Stockholder hereby agrees that,
so long as this Agreement shall remain in effect, such Stockholder will vote all
of the voting Securities owned or held of record by such Stockholder so as to
elect and, during such period, to continue in office a Board of Directors of the
Company and each Subsidiary of the Company (other than Subsidiaries of
Sheridan), each consisting solely of the following:
(i) 3 designees of Vestar (or its designated Permitted Transferees);
<PAGE> 27
11
(ii) 2 designees of the Management Investors (who shall be Mitchell
Eisenberg and Lewis Gold so long as each of them is an executive officer of
Sheridan); and
(iii) 2 persons to be designated by Vestar (or its designated
Permitted Transferees) in its sole discretion after consultation with the
Management Investor Representative.
(b) If at any time while this Agreement shall remain in effect
Vestar (or its designated Permitted Transferees) shall notify the other
Stockholders of its desire to remove, with or without cause, any director of the
Company or any of its Subsidiaries previously designated by it in accordance
with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities
owned or held of record by it so as to remove such director.
(c) If at any time while this Agreement shall remain in effect any
director previously designated by Vestar (or its Permitted Transferees) or the
Management Investors ceases to serve on the Board of Directors of the Company or
any Subsidiary of the Company (whether by reason of death, resignation, removal
or otherwise), the Stockholder or Stockholders who designated such director
shall be entitled to designate a successor director to fill the vacancy created
thereby on the terms and subject to the conditions of paragraph (a). Each
Stockholder agrees to vote all of the voting Securities owned or held of record
by such Stockholder so as to elect any such director.
(d) The parties hereto hereby agree that any individual designated
as a director of the Company or any Subsidiary of the Company may be removed for
cause (as reasonably determined by the Board of Directors of the Company, other
than such person) with or without the consent of the Stockholder which
designated such individual. No such removal of an individual designated pursuant
to this Section 2.1 shall affect the rights of any of the Stockholders to
designate a different individual pursuant to this Section 2.1.
(e) No fees shall be paid by the Company or any of its Subsidiaries
to any member of their respective Boards of Directors who are employees of
Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a
member of such Board of Directors; provided that the foregoing shall not limit
reimbursement of expenses in accordance with the expense reimbursement policy of
Sheridan and its Subsidiaries.
(f) The Stockholders hereby agree that Vestar (or its designated
Permitted Transferees) shall have sole discretion to determine the composition
of the Company's and its Subsidiaries' Board of Directors' committees (e.g.,
audit, compensation, etc.) through the rights granted to Vestar (or its
designated Permitted Transferees) pursuant to Section 2.1(a)(i).
2.2 Other Voting Matters. (a) Each Management Investor and their
Permitted Transferees hereby agrees that, until the occurrence of the Lapse
Date, such Stockholder will vote all of the Securities owned or held of record
by such Stockholder, either in person or by proxy, whether at a meeting of
stockholders or by executing a written consent, (i) consistent with the vote of
Vestar with respect to the shares of Common Stock beneficially owned by Vestar
and (ii) to ratify, approve and adopt any and all actions adopted or approved by
the Board of Directors of the Company.
<PAGE> 28
12
(b) In order to effectuate the provisions of Sections 2.1 and 2.2
hereof, (i) each of the Management Investors and their Permitted Transferees
hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be
Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan,
a proxy to vote at any annual or special meeting of Stockholders, or to take
action by written consent in lieu of such meeting with respect to, or to
otherwise take action in respect of, all of the Securities owned or held of
record by the Management Investors and their Permitted Transferees in connection
with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the
provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is
irrevocable and is coupled with an interest. To effectuate the provisions of
this Section 2, the Secretary of each of the Company and each Subsidiary of the
Company, or if there be no Secretary such other officer of the Company or such
Subsidiary as the Board of Directors of the Company or such Subsidiary may
appoint to fulfill the duties of the Secretary, shall not record any vote or
consent or other action contrary to the terms of this Section 2.
SECTION 3. TRANSFERS AND ISSUANCES
3.1 Transfers to be Made Only as Permitted or Required by this
Agreement.
(a) Each Stockholder hereby agrees that such Stockholder will not,
directly or indirectly, Transfer any Securities unless such Transfer complies
with the provisions hereof and (i) such Transfer is pursuant to an effective
registration statement under the Securities Act and has been registered under
all applicable state securities or "blue sky" laws or (ii) such Stockholder
shall have furnished the Company with a written opinion of counsel reasonably
satisfactory to the Company in form and substance reasonably satisfactory to the
Company to the effect that no such registration is required because of the
availability of an exemption from registration under the Securities Act and all
applicable state securities or "blue sky" laws.
(b) Each Management Investor and their Permitted Transferees hereby
agrees that, except for Transfers in connection with a Public Offering,
Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or
3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no
Transfer shall occur unless the transferee shall agree to become a party to, and
be bound to the same extent as its transferor by the terms of, this Agreement in
accordance with the provisions of Section 5.6 hereof.
(c) Each Management Investor and their Permitted Transferees hereby
agrees that such Stockholder shall not, without the prior written consent of
Vestar (which consent may be withheld by Vestar in its absolute discretion),
effect a Transfer prior to the Lapse Date, except for Transfers in connection
with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10,
3.11, 3.12, 3.13 or 3.14 hereof.
3.2 Permitted Transfers. (a) Any Management Investor may Transfer
any of the Securities beneficially owned by him (i) to his spouse, parent,
descendant, step-child, or step-grandchild or any executor, estate, guardian,
committee, trustee or other fiduciary acting as such solely on behalf or solely
for the benefit of any such spouse, parent, descendant, step-child or
step-grandchild (collectively, a "Family Group"), (ii) to any trust,
corporation, partnership or limited liability company, all of the beneficial
interests in which shall be held, directly or
<PAGE> 29
13
indirectly, by such Management Investor and/or one or more of the Family Group
of such Management Investor; provided, however, that during the period that any
such trust, corporation, partnership or limited liability company holds any
right, title or interest in any Securities, no person other than such Management
Investor or members of the Family Group of such Management Investor may be or
become beneficiaries, stockholders, general partners or members thereof, (iii)
which he has purchased on a stock exchange or in the over-the-counter market
after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan,
the Company, Vestar or any of Vestar's Affiliates. A transferee under this
Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee
of Vestar and its Affiliates in a Transfer made in accordance with this
Agreement, is referred to as a "Permitted Transferee."
(b) Notwithstanding anything in this Agreement to the contrary,
Vestar and its Affiliates shall be entitled from time to time, without
compliance with Section 3.5, to Transfer any or all of the Securities
beneficially owed by them to any of their Affiliates who agrees to become a
party to, and be bound to the same extent as its transferor by, the terms of
this Agreement.
3.3 Effect of Void Transfers. In the event of any purported Transfer
of any Securities in violation of the provisions of this Agreement, such
purported Transfer shall be void and of no effect and the Company shall not give
effect to such Transfer.
3.4 Legend on Securities. Each certificate representing Securities
issued to any Stockholder shall bear the following legend on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE
"COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND
THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE
COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF
ANY VOTING RIGHTS GRANTED BY THE SECURITIES."
<PAGE> 30
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3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in
effect, with respect to any proposed Transfer by any of Vestar and its
Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock
permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the
Transferring Stockholder shall have the obligation, and each other Stockholder
(other than Vestar or any of its Affiliates) shall have the right, to require
the proposed transferee to purchase from each such other Stockholder having and
exercising such right (each a "Tagging Stockholder") a number of shares of
Common Stock up to the product (rounded up to the nearest whole number) of (i)
the quotient determined by dividing (A) the aggregate number of shares of Common
Stock beneficially owned on a fully diluted basis by such Tagging Stockholder
and sought by the Tagging Stockholder to be included in the contemplated
Transfer by (B) the aggregate number of shares of Common Stock beneficially
owned on a fully diluted basis by the Transferring Stockholder and all Tagging
Stockholders and sought by the Transferring Stockholder and all Tagging
Stockholders to be included in the contemplated Transfer and (ii) the total
number of shares of Common Stock proposed to be directly or indirectly
Transferred to the transferee in the contemplated Transfer, and at the same
price per share of Common Stock and upon the same terms and conditions
(including without limitation time of payment and form of consideration) as to
be paid and given to the Transferring Stockholder; provided that a Stockholder
shall not be deemed to beneficially own any shares underlying unexercised
Options unless such Options are vested and exercisable as of the date of the Tag
Notice described in Section 3.5(b); and provided further that in order to be
entitled to exercise its right to sell shares of Common Stock to the proposed
transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to
make to the transferee the same representations, warranties, covenants,
indemnities and agreements as the Transferring Stockholder agrees to make in
connection with the proposed Transfer of the shares of Common Stock of the
Transferring Stockholder (except that in the case of representations and
warranties pertaining specifically to the Transferring Stockholder a Tagging
Stockholder shall make the comparable representations and warranties pertaining
specifically to itself); and provided further that all representations,
warranties and indemnities shall be made by Tagging Stockholders severally and
not jointly and that the liability of the Transferring Stockholder and the
Tagging Stockholders (whether pursuant to a representation, warranty, covenant,
indemnification provision or agreement) shall be evidenced in writings executed
by them and the transferee and shall be borne by each of them on a pro rata
basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and
wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a)
shall convert or exercise or exchange such number of Common Stock Equivalents
into or for Common Stock as may be required therefor on or prior to the closing
date of such Transfer.
(b) The Transferring Stockholder shall give notice (a "Tag Notice")
to all relevant Stockholders of each proposed Transfer giving rise to the rights
of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at
least 45 days prior to the proposed consummation of such Transfer, setting forth
the name of the Transferring Stockholder, the number of shares of Common Stock
proposed to be so Transferred, the name and address of the proposed transferee,
the proposed amount and form of consideration, the other terms and conditions of
payment offered by the proposed transferee and the representations, warranties
and indemnities to be made or given by the Transferring Stockholders, and a
representation that the proposed transferee has been informed of the tag-along
rights provided for in this Section 3.5 and has agreed to purchase shares of
Common Stock in accordance with the terms hereof. The tag-along rights provided
by
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15
this Section 3.5 must be exercised by each Tagging Stockholder within 20 days
following receipt of the notice required by the preceding sentence, by delivery
of a written notice to the Transferring Stockholder indicating such Tagging
Stockholder's desire to exercise its rights and specifying the number of shares
of Common Stock it desires to sell. The Transferring Stockholder shall be
entitled under this Section 3.5 to Transfer to the proposed transferee the
number of shares of Common Stock equal to the excess of (x) the number referred
to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of
Common Stock set forth in the written notices, if any, delivered by the Tagging
Stockholders pursuant to the preceding sentence (up to the maximum number of
shares of Common Stock beneficially owned by such Tagging Stockholder required
to be purchased by the proposed transferee pursuant to the first sentence of
Section 3.5(a)). If the proposed transferee fails to purchase shares of Common
Stock from any Tagging Stockholder that has properly exercised its tag-along
rights, then the Transferring Stockholder shall not be permitted to make the
proposed Transfer, and any such attempted Transfer shall be void and of no
effect, as provided in Section 3.3 hereof.
(c) If any of the Tagging Stockholders exercise their rights under
Section 3.5(a), (i) the first shares of Common Stock to be transferred by such
Tagging Stockholder must be Vested Purchased Shares until such Tagging
Stockholder owns no more Vested Purchased Shares, then Option Shares until such
Tagging Stockholder owns no more Option Shares, then any remaining Purchased
Shares and (ii) the closing of the purchase of the Common Stock with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Transferring Stockholder's Common Stock.
3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7
shall not be applicable to offers and sales of Securities in a Public Offering
or, if such Securities previously have been sold in a Public Offering, pursuant
to Rule 144 under the Securities Act.
3.7 Drag-Along Rights. So long as this Agreement shall remain in
effect, if any of Vestar and its Affiliates receives an offer from a Third Party
to purchase all or any portion of the outstanding shares of Common Stock and
such offer is accepted by Vestar or such Affiliate, as the case may be, then
each other Stockholder hereby agrees that it will, if requested in writing not
less than 15 days' prior to the requested Transfer date by Vestar or such
Affiliate, Transfer a pro rata number of Securities beneficially owned by it to
such Third Party on the terms of the offer so accepted by Vestar or such
Affiliate, as the case may be; including making the same representations,
warranties, covenants, indemnities and agreements that Vestar or such Affiliate,
as the case may be, agrees to make (except that, in the case of representations
and warranties pertaining specifically to Vestar or such Affiliate, as the case
may be, each other Stockholder shall make the comparable representations and
warranties pertaining specifically to itself); provided that all
representations, warranties and indemnities shall be made by Stockholders
severally and not jointly and that the liability of Stockholders (whether
pursuant to a representation, warranty, covenant, indemnification provision or
agreement) shall be evidenced in writings executed by them and the transferee
and shall be borne by each of them on a pro rata basis; and provided further
that the terms of such offer applicable to any Common Stock beneficially owned
by such other Stockholder are no less favorable than the terms of such offer
applicable to the Common Stock beneficially owned by Vestar or such Affiliate,
as the case may be, and their respective Affiliates (including with respect to
the amount and nature of consideration and time of receipt
<PAGE> 32
16
thereof); and provided further that the first shares of Common Stock Transferred
by such other Stockholder must be Vested Purchased Shares until such other
Stockholder owns no more Vested Purchased Shares, then the Option Shares until
such other Stockholder owns no more Option Shares, then the portion of any
Options then held by such other Stockholder that are then vested and exercisable
(provided in the case of a Transfer of any such portion of the Options that the
Company shall have made acceptable arrangements with the transferee for the same
per share consideration to be paid to such Stockholder for such portion of the
Option as the transferee pays for the shares of Common Stock to be purchased by
the transferee, reduced by the aggregate option exercise price for the
transferred portion of the Options) until no portion of the Options held by such
Stockholder is vested and exercisable, and then any remaining Purchased Shares.
3.8 Rights of First Refusal. (a) Each Management Investor and their
Permitted Transferees agree that if, prior to a Qualified Public Offering, such
Management Investor or any of its Permitted Transferees receives a bona fide
offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer
Securities") then owned by such Management Investor or such Management
Investor's Permitted Transferees (collectively, the "Management Investor's
Transfer Group") from any Person (the "Offeror") which any member of the
Management Investor's Transfer Group wishes to accept (the "Management Investor
Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be
reduced to writing and shall provide a written notice (the "Transfer Notice") of
such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice
shall also contain an irrevocable offer to sell the Transfer Securities to the
Company, Vestar and Sheridan (in the manner set forth below) at a price equal to
the price contained in, and upon the same terms and conditions as the terms and
conditions contained in, the Transfer Offer and shall be accompanied by a true
and complete copy of the Transfer Offer (which shall identify the Offeror, the
Transfer Securities, the price contained in the Transfer Offer and the other
material terms and conditions of the Transfer Offer). At any time within 30 days
after the date of the receipt by the Company, Vestar and Sheridan of the
Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan
or any of their designated Affiliates shall have the right and option to
purchase all (but not less than all) of the Transfer Securities covered by the
Transfer Offer either (i) for the same consideration and on the same terms and
conditions as the Transfer Offer or (ii) if the Transfer Offer includes any
consideration other than cash, then, at the sole option of the Company, Vestar,
Sheridan, or any of their designated Affiliates, as applicable, at the
equivalent all cash price, determined in good faith by a majority of the members
of the Company's Board of Directors. If the option referred to in the preceding
sentence is exercised, on or prior to the 60th day after the date of receipt by
the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar,
Sheridan or any other designated Affiliates, as applicable, shall execute and
deliver to the Management Investor Offeree a written agreement in the form
included in the Transfer Offer, including representations, warranties, covenants
and indemnities, if the Transfer Offer included such written agreement, and
shall pay the relevant cash consideration, by delivering a certified bank check
or checks in (or, if the Management Investor Offeree so elects at least three
business days prior to the closing date in a writing specifying the Management
Investor Offeree's bank account and other wire Transfer instructions, by wire
transferring) the appropriate amount and shall deliver the relevant non-cash
consideration to the Management Investor Offeree against delivery at the
principal office of Sheridan of certificates or other instruments representing
the Transfer Securities so purchased, appropriately endorsed by the Management
Investor Offeree. If at the end of such 30-day period,
<PAGE> 33
17
the Company, Vestar and Sheridan have not delivered written notice of exercise
by them of their right to purchase the Transfer Securities pursuant to this
Section 3.8 or if at the end of such 60-day period, the Company, Vestar and
Sheridan have not tendered the purchase price for such shares in the manner set
forth above, the Management Investor Offeree shall be free for a period of 90
days from the end of such 30- or 60-day period, as applicable, to Transfer not
less than all of the Transfer Securities to the Offeror on the terms and
conditions set forth in the Transfer Notice (including the execution and
delivery of any written agreement in the form included in the Transfer Offer).
Such Offeror shall agree in a writing in form and substance reasonably
satisfactory to the Company to become a party hereto and be bound to the same
extent as the Management Investor Offeree by the provisions hereof. Promptly
after such sale, the Management Investor Offeree shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion and time
of completion of such sale and of the terms thereof as may reasonably be
requested by the Company. If for any reason any Management Investor Offeree does
not Transfer Transfer Securities to the Offeror on the terms and conditions set
forth in the Transfer Notice, or if any Management Investor Offeree wishes to
sell the Transfer Securities on terms other than those set forth in the Transfer
Notice, the provisions of this Section 3.8 shall again be applicable to the
Transfer Securities.
(b) The closing of the purchase of the Transfer Securities by the
Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate,
upon exercise of its right of first refusal pursuant to Section 3.8(a) shall
take place at the principal office of Sheridan on a date specified by the
Company, Sheridan, Vestar or any of their designated Affiliates, as applicable,
no later than the last day of the 60-day period after the giving of the Transfer
Notice.
(c) Notwithstanding anything in this Section 3.8 to the contrary,
(i) neither Vestar nor any of its designated Affiliates may exercise a right of
first refusal under this Section 3.8 unless Vestar has received a written notice
from the Company indicating the Company's intention not to exercise such right
of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its
designated Affiliates may exercise a right of first refusal under this Section
3.8 unless Sheridan has received a No ROFR Notice from Vestar.
3.9 Participation Right. (a) Except as otherwise set forth in
Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or
any of its Affiliates:
(i) additional shares of Common Stock or Common Stock Equivalents or
capital stock of the Company other than Common Stock and Common Stock
Equivalents ("Other Capital Stock"); or
(ii) any warrants, rights, calls, options or other securities
exchangeable for or exercisable or convertible into Other Capital Stock or
any other security other than Common Stock, Common Stock Equivalents or
Other Capital Stock entitled to participate in the Company's profits
(collectively, "Other Capital Stock Equivalents");
unless, prior to such Issuance, the Company notifies each Management Investor in
writing of the proposed Issuance and grants to such notified party or, at the
election of such notified party, one of its Affiliates the right (the "Right")
to subscribe for and purchase such additional shares of Common Stock or Other
Capital Stock or such additional shares or units of
<PAGE> 34
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Common Stock Equivalents or Other Capital Stock Equivalents (collectively,
"Equity Interests") so issued at the same price and upon the same terms and
conditions (including, in the event such Equity Interests are issued as a unit
together with other securities, the purchase of such other securities) as issued
in the Issuance such that:
(A) in the case of an Issuance in which shares of Common Stock or
Common Stock Equivalents are to be issued, immediately after giving effect
to the Issuance and exercise of the Right (including, for purposes of this
calculation, the issuance of shares of Common Stock upon conversion,
exchange or exercise of any Common Stock Equivalent issued in the Issuance
or subject to the Right), the shares of Common Stock beneficially owned by
the notified party and its Affiliates on a fully diluted basis (rounded to
the nearest whole share) shall represent the same percentage of the
aggregate number of shares of Common Stock outstanding on a fully diluted
basis as was beneficially owned by such notified party and its Affiliates
and Vestar and its Affiliates, respectively, immediately prior to the
Issuance; provided, that for purposes of the calculations required by this
Section 3.9(a)(A) notified parties and their Affiliates shall not be
deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance; and
(B) in the case of an Issuance in which shares of Other Capital
Stock or Other Capital Stock Equivalents are to be issued, the notified
party and its Affiliates shall have the Right to acquire a percentage of
the Other Capital Stock or Other Capital Stock Equivalents to be issued in
the Issuance equal to the percentage of shares of Common Stock on a fully
diluted basis that was beneficially owned by such notified party and its
Affiliates and Vestar and its Affiliates, respectively, immediately prior
to the Issuance; provided, that for purposes of the calculations required
by this Section 3.9(a)(B) notified parties and their Affiliates shall not
be deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance.
(b) The Right may be exercised by the notified party at any time by
written notice to the Company received by the Company within 20 days after the
date on which such notified party receives notice from the Company of the
proposed Issuance, and the closing of the purchase and sale pursuant to the
exercise of the Right shall occur at least 15 days (but not later than 180 days)
after the Company receives notice of the exercise of the Right and prior to or
concurrently with the closing of the Issuance. Notwithstanding the foregoing
provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of
Equity Interests pro rata to all holders of Common Stock and Other Capital
Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common
Stock Equivalent or any Other Capital Stock Equivalent outstanding on the
Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management
Investor or any other employee of the Company pursuant to a management stock
subscription agreement or stock option or other employee benefit plan of the
Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board
of Directors of the Company or a Subsidiary of the Company designated by Vestar
and its Permitted Transferees who is not a director, officer, general partner or
employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as
such to the
<PAGE> 35
19
Board of Directors of the Company or a Subsidiary of the Company, (v) any
Issuance pursuant to a bona fide underwritten public offering pursuant to an
effective registration statement under the Securities Act or (vi) any Issuance
of Mezzanine Securities.
3.10 Partial Transfers Following a Qualified Public Offering. Each
Senior Management Investor may, during the one year period commencing on the
second anniversary of the first Qualified Public Offering and during each one
year period commencing on each succeeding anniversary of such Qualified Public
Offering thereafter (each such anniversary being referred to as a "Measurement
Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option
Shares beneficially owned by such Senior Management Investor on the applicable
Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this
provision shall not permit a Senior Management Investor who has already
Transferred (pursuant to any provision of this Agreement which permits Transfers
by Senior Management Investors) the cumulative number of shares of Common Stock
he or she otherwise would be entitled to Transfer pursuant to this Section 3.10
to Transfer any additional shares of Common Stock.
3.11 Partial Transfers to Cover Option-Related Tax Payments.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by the Management Investor with Good Reason, and
thereafter such Management Investor exercises Options which would otherwise
expire unless so exercised, such Management Investor may Transfer Securities;
provided, that the aggregate purchase price for the Securities being Transferred
shall not exceed the total amount of taxes which such Management Investor's tax
consultant has reasonably advised will be due and owing in respect of such tax
year by such Management Investor as a result of such Management Investor
exercising such Options; and provided, further, that such Transfer shall be
subject to the right of first refusal provisions of Section 3.8.
3.12 Transfers to Other Management Investors.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then at
any time after the conclusion of the Second Call Period, such Management
Investor may Transfer all or any portion of the Securities beneficially owned by
him to one or more of the other Management Investors; provided, however, that if
the proposed purchase price for such Securities which is offered to the other
Management Investors is less than the relevant purchase price under Section
3.13(c), such proposed Transfer hereunder by such Management Investor shall be
subject to the right of first refusal provisions of Section 3.8.
3.13 Call Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated by the applicable employer for Cause, then within 180 days of the
employment termination date, and subject to Section 3.13(e), the Company,
Vestar, Sheridan or any of their designated Affiliates shall have the option to
purchase all or any portion of the Purchased Shares and Option Shares held by
such
<PAGE> 36
20
Management Investor and such Management Investor's Permitted Transferees by
providing written notice of the relevant election (including the number of
Securities to be purchased) to the applicable Management Investor and Permitted
Transferees (a "Call Notice"). The purchase price per share for such Securities
will be the lower of Cost and Fair Market Value on the date of termination of
employment.
(b) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated due to the death
or Disability of such Management Investor, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
such Securities will be the greater of Cost and Fair Market Value on the date of
termination of employment.
(c) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then
within the later of (1) 180 days of the employment termination date (and, with
respect to any Option Shares, within 180 days after the date of the last
exercise of any Options, if later) or (2) ten days after the applicable
Management Investor has rescinded his election to sell all or a portion of his
Purchased Shares which were to be paid for with a Junior Subordinated Note in
connection with the put right set forth in Section 3.14, and subject to Section
3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates
shall have the option to purchase all or any portion of the Purchased Shares and
Option Shares held by such Management Investor and such Management Investor's
Permitted Transferees by providing a Call Notice to the applicable Management
Investor and Permitted Transferees. The purchase price per share for (A) the
Applicable Percentage of the Purchased Shares and for all Option Shares will be
the greater of (x) Cost or (y) Fair Market Value on the date of termination of
employment and (B) the remaining portion of such Purchased Shares, if any, will
be Cost.
(d) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is voluntarily terminated by
such Management Investor without Good Reason, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
the Applicable Percentage of the Purchased Shares and for all Option Shares will
be Fair Market Value on the date of termination of employment and the purchase
price for the remaining portion of the Purchased Shares, if any, will be the
lower of (x) Cost or (y) Fair Market Value on the date of termination of
employment; provided that if such voluntary termination without Good Reason
occurs prior to the second anniversary of the Closing
<PAGE> 37
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Date, the Purchase Price per share for all Option Shares will be the lower of
(x) Cost or (y) Fair Market Value on the date of termination of employment.
(e) Notwithstanding anything in this Section 3.13 to the contrary
(i) neither Vestar nor any of its designated Affiliates may exercise a call
right under this Section 3.13 unless Vestar has received written notice from the
Company indicating the Company's intention not to exercise such call right (a
"No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates
may exercise a call right under this Section 3.13 unless Sheridan has received a
No Call Notice from Vestar.
(f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair
Market Value on the date of the Management Investor's termination of employment
and none of the Company, Vestar or Sheridan exercises the call right with
respect to the Purchased Shares and Option Shares which it could have purchased
at Cost (the "Cost Securities") during the 180 day period commencing on such
date of termination (the "Initial Call Period"), then the Company, Vestar or
Sheridan (subject once again to the provisions of Section 3.13(e) with respect
to the Second Call Period regardless of whether No Call Notices were issued in
the Initial Call Period) will have an additional right to call the Cost
Securities during the 90-day period commencing on the eighteen-month anniversary
of the Management Investor's termination of employment (the "Second Call
Period") by providing a Call Notice to the applicable Management Investor. The
purchase price per share for such Securities pursuant to Section 3.13(c)(A) will
be the greater of (x) Fair Market Value on the date of termination of employment
and (y) Fair Market Value on the first day of the Second Call Period and the
purchase price for such Securities pursuant to Section 3.13(c)(B) will be the
lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call
Period.
(g) The completion of the purchases pursuant to Sections 3.13(a),
(b), (c), (d) and (f) shall take place at the principal office of Sheridan on or
prior to the thirtieth (30th) day after the giving of the applicable Call
Notice. The repurchase price for the Securities shall be paid by delivery to the
appropriate Management Investor or Permitted Transferee of a certified bank
check or checks in the appropriate amount payable to the order of such
Management Investor or Permitted Transferee unless Sheridan is the party
exercising such call right and a Financing Default exists or, after giving
effect to such payment would exist, which prohibits such cash payment, in which
case the portion of the cash payment so prohibited shall be made, to the extent
permitted by any loan agreement, indenture or other agreement to which Sheridan
is a party, by Sheridan's delivery of a junior subordinated promissory note
(which shall be subordinated and subject in right of payment to the prior
payment of all indebtedness of Sheridan including, without limitation, any debt
outstanding under any credit agreement and any modifications, renewals,
extensions, replacements and refunding of all such indebtedness) of Sheridan (a
"Junior Subordinated Note") in a principal amount equal to the amount of the
purchase price which cannot be paid in cash, payable in five equal annual
installments commencing on the first anniversary of the issuance thereof and
bearing interest payable annually in arrears at the publicly announced prime
rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all
or any of the purchase price for any of the Securities with a Junior
Subordinated Note, and then resells such Securities for cash, the portion of the
accrued but unpaid interest and, to the extent of any excess, the outstanding
principal amount of the Junior Subordinated Note that is equal to the amount of
such cash proceeds shall become immediately due and payable, unless and to the
extent
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that payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, the payment
of all or any portion of the amounts outstanding under such Junior Subordinated
Note can be repaid by Sheridan without giving rise to a Financing Default (a
"Permitted Payment"), Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment (accrued interest first and then principal) in cash to the applicable
Management Investor or Permitted Transferee by delivery of a certified bank
check to the order of such Management Investor or Permitted Transferee. If
Sheridan cannot pay the purchase price for any Securities subject to a Call
Notice in cash or a Junior Subordinated Note due to any circumstance described
in this subparagraph 9(g), Sheridan shall not be permitted to exercise the
applicable call right.
3.14 Put Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated due to the death or Disability of such Management Investor, then
within 180 days of the employment termination date such Management Investor and
the members of the Family Group of such Management Investor shall have the
option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one
occasion from such Management Investor and the members of the Family Group of
such Management Investor, all or any portion of the Purchased Shares held by
such Management Investor and the members of the Family Group of such Management
Investor by providing written notice of his or their election (including the
number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase
price per share for such Securities will be Fair Market Value on the date of
termination of employment.
(b) If, at any time prior to the Lapse Date, a Senior Management
Investor's employment with the Company and its Subsidiaries is terminated by the
applicable employer without Cause or by such Senior Management Investor with
Good Reason, then within 180 days of the employment termination date such Senior
Management Investor shall have the option to sell to Sheridan, and Sheridan
shall be obligated to purchase, on one occasion from such Senior Management
Investor a number of Purchased Shares held by such Senior Management Investor
the aggregate purchase price for which under this Section 3.14(b) is not in
excess of the aggregate purchase price paid by such Senior Management Investor
on the Closing Date for all Securities purchased by such Senior Management
Investor on the Closing Date. Such Senior Management Investor shall exercise
such put right by providing a Put Notice to Sheridan. The purchase price per
share for (A) the Applicable Percentage of such Purchased Shares will be Fair
Market Value on the date of termination of employment and (B) the remaining
portion of such Purchased Shares, if any, will be the lower of Cost and Fair
Market Value on the date of termination of employment.
(c) The completion of the purchase pursuant to Section 3.14 (a)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice. The purchase price for the Purchased
Shares included in the Put Notice shall be paid by delivery to the appropriate
Management Investor or the members of his Family Group, as applicable, of a
certified bank check or checks in the appropriate amount payable to the order of
such Management Investor or the members of his Family Group, as applicable,
unless a Financing Default exists or, after giving effect to such payment would
exist, which prohibits such cash
<PAGE> 39
23
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the purchase price with a Junior Subordinated Note, Sheridan
shall give the notice of the principal amount of such note at least 15 days
prior to such purchase, and the relevant Management Investor shall have ten days
thereafter to rescind his election to sell all or a portion of his Purchased
Shares to be paid for with such note. If Sheridan pays all or any portion of the
purchase price for any Purchased Shares with a Junior Subordinated Note, and
then resells such Purchased Shares for cash, the portion of the accrued but
unpaid interest and, to the extent of any excess, the outstanding principal
amount of the Junior Subordinated Note that is equal to the amount of such cash
proceeds shall become immediately due and payable, unless and to the extent that
payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted
Payment can be made, Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment in cash to the applicable Management Investor or the members of his
Family Group, as applicable, by delivery of a certified bank check to the order
of such Management Investor or the members of his Family Group, as applicable.
(d) The completion of the purchase pursuant to Sections 3.14 (b)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice, at which time at least fifty percent of
the purchase price shall be paid. If Sheridan elects to pay less than all of the
purchase price initially, the remaining portion of the purchase price shall be
paid in one payment on or prior to the first anniversary of the giving of the
Put Notice. The purchase price for the Purchased Shares included in the Put
Notice shall be paid by delivery to the appropriate Senior Management Investor
of a certified bank check or checks in the appropriate amount payable to the
order of such Senior Management Investor unless a Financing Default exists or,
after giving effect to such payment would exist, which prohibits such cash
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the initial payment of the purchase price with a Junior
Subordinated Note, Sheridan shall give the Senior Management Investor notice of
the principal amount of such note at least 15 days prior to such purchase, and
the relevant Senior Management Investor shall have ten days thereafter to
rescind his election to sell all or a portion of his Purchased Shares to be paid
for with such note. If Sheridan pays all or any portion of the purchase price
for any Purchased Shares with a Junior Subordinated Note, and then resells such
Purchased Shares for cash, the portion of the accrued but unpaid interest and,
to the extent of any excess, the outstanding principal amount of the Junior
Subordinated Note that is equal to the
<PAGE> 40
24
amount of such cash proceeds shall become immediately due and payable, unless
and to the extent that payment of such accrued interest or outstanding principal
under the Junior Subordinated Note would constitute or result in a Financing
Default. If at any time after the issuance by Sheridan of a Junior Subordinated
Note, a Permitted Payment can be made, Sheridan shall, as promptly as
practicable but not later than thirty days after such payment becomes
permissible, pay the Permitted Payment (accrued interest first and then
principal) in cash to the applicable Senior Management Investor by delivery of a
certified bank check to the order of such Senior Management Investor.
SECTION 4. REGISTRATION RIGHTS
4.1 Demand Registration.
(a) Common Stock Request. Upon the written request (a "Request") of
Vestar or its designated Permitted Transferees that the Company effect the
registration under the Securities Act of all or part of the shares of Common
Stock owned or to be acquired upon conversion, exercise or exchange of Common
Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting
Stockholder"), the Company will use its best efforts to effect the registration
under the Securities Act of such shares.
(b) Registration Statement Form. Registrations under this Section
4.1 shall be on such appropriate registration form of the SEC as shall (i) be
selected by the Company and (ii) permit the disposition of the Common Stock
being registered in accordance with the intended method or methods of
disposition specified in the request for such registration. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the underwriters, the Requesting Stockholder and the
Company, is required to be included.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, or
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
Governmental Authority for any reason not attributable to the Requesting
Stockholder or any of its Affiliates and has not thereafter become effective.
(d) Limitations on Registration on Request. Notwithstanding anything
in this Section 4.1 to the contrary, in no event will (i) the Company be
required to effect more than one registration pursuant to Section 4.1(a) within
any 180 day period or (ii) the Requesting Stockholder be entitled to more than
five registrations in the aggregate pursuant to Section 4.1(a); unless in the
case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of
the costs and expenses of each such additional registration (unless either (x) a
registration so requested is not deemed to have been effected pursuant to
Section 4.1(c) for a reason not attributable to the Requesting Stockholder or
any of its Affiliates or (y) the number of shares of Common Stock sought to be
included by such Requesting Stockholder in such registration is reduced by more
than 25% pursuant to the provisions of Section 4.2(b)).
<PAGE> 41
25
4.2 Incidental Registration.
(a) Right to Include Common Stock and Common Stock Equivalents. If
the Company at any time proposes to register any shares of Common Stock (or
Common Stock Equivalents, including any registration of Common Stock Equivalents
pursuant to the exercise of rights under Section 4.2(b)) under the Securities
Act (except registrations on such form(s) solely for registration of Common
Stock or Common Stock Equivalents in connection with any employee benefit plan
or dividend reinvestment plan or a merger or consolidation), including
registrations pursuant to Section 4.1(a), whether or not for sale for its own
account, it will each such time as soon as practicable give written notice of
its intention to do so to all the Stockholders. Upon the written request (which
request shall specify the total number of shares of Common Stock or Common Stock
Equivalents intended to be disposed of by such Stockholder) of any Stockholder
made within 30 days after the receipt of any such notice (15 days if the Company
gives telephonic notice with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such shorter
period of time is required because of a planned filing date), the Company will
use all reasonable efforts to effect the registration under the Securities Act
of all Common Stock held or to be acquired upon conversion, exercise or exchange
of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be
registered by the Company, Common Stock Equivalents) by the Stockholders which
the Company has been so requested to register for sale in the manner initially
proposed by the Company; provided that the Company shall not be obliged to
register any Common Stock Equivalents which are not of the same class, series
and form as the Common Stock Equivalents proposed to be registered by the
Company. If the Company thereafter determines for any reason not to register or
to delay registration of the Common Stock or Common Stock Equivalents (provided,
however, that in the case of any registration pursuant to Section 4.1(a), such
determination shall not violate any of the Company's obligations under Section
4.1 or any other provision of this Agreement), the Company may, at its election,
give written notice of such determination to the Stockholders and (A) in the
case of a determination not to register, shall be relieved of the obligation to
register such Common Stock or Common Stock Equivalents in connection with such
registration (without prejudice, however, to any right the Requesting
Stockholder may have to request that such registration be effected as a
registration under Section 4.1(a)) and (B) in the case of a determination to
delay registering, shall be permitted to delay registering any Common Stock or
Common Stock Equivalents of a Stockholder for the same period as the delay in
registration of such other securities. No registration effected under this
Section 4.2(a) shall relieve the Company of any obligation to effect a
registration upon a Common Stock Request under Section 4.1(a).
(b) Priority in Incidental Registration. In a registration pursuant
to this Section 4.2, if the managing underwriter of such underwritten offering
shall inform the Company and the relevant Stockholders by letter of its belief
that the number of shares of Common Stock or Common Stock Equivalents, as the
case may be, to be included in such registration would adversely affect its
ability to effect such offering, then the Company will be required to include in
such registration only that number of shares of Common Stock or Common Stock
Equivalents which it is so advised should be included in such offering. Shares
of Common Stock or Common Stock Equivalents proposed by the Company to be
registered for issuance by the Company shall have the first priority in a
registration pursuant to Section 4.2(a) and all other shares of Common
<PAGE> 42
26
Stock or Common Stock Equivalents to be registered (whether or not requested to
be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given
second priority without preference among the relevant holders. If less than all
of the Stockholder's shares of Common Stock or Common Stock Equivalents are to
be registered, each such Stockholder's shares of Common Stock or Common Stock
Equivalents shall be included in the registration pro rata based on the total
number of shares of Common Stock or Common Stock Equivalents sought to be
registered by each Stockholder (as opposed to the Company).
(c) Custody Agreement and Power of Attorney. Upon delivering a
request under this Section 4.2, Management Investors and their Permitted
Transferees will, if requested by the Company, execute and deliver a custody
agreement and power of attorney in form and substance reasonably satisfactory to
the Company and one of the director designees referred to in Section 2.1(a)(i)
with respect to such Stockholder's shares of Common Stock or Common Stock
Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement
and Power of Attorney"). The Custody Agreement and Power of Attorney will
provide, among other things, that the Stockholder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein (who shall be
reasonably satisfactory to one of the director designees referred to in Section
2.1(a)(i)) a certificate or certificates representing such shares of Common
Stock or Common Stock Equivalents (duly endorsed in blank by the registered
owner or owners thereof or accompanied by duly executed stock powers in blank)
and irrevocably appoint said custodian and attorney-in-fact as such
Stockholder's agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on such Stockholder's behalf
with respect to the matters specified therein. Such Stockholder also agrees to
execute such other agreements as the Company may reasonably request to further
evidence the provisions of this Section 4.2.
4.3 Registration Procedures. In connection with the Company's
obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all
reasonable efforts to effect such registration and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use all reasonable efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (i) 180 days following the date on which such
registration statement is declared effective or (ii) the termination of the
offering being made thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
shares of Common Stock or Common Stock Equivalents, as the case may be, covered
by such registration statement until such Common Stock or Common Stock
Equivalents have been sold or such lesser period of time as the Company, any
seller of such Common Stock or Common Stock Equivalents or any underwriter is
required under the Securities Act to deliver a prospectus in accordance with the
intended methods of disposition by the sellers
<PAGE> 43
27
of such Common Stock or Common Stock Equivalents set forth in such registration
statement or supplement to such prospectus;
(c) furnish to each Stockholder which owns shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by such registration
statement (the "Selling Stockholders") and the managing underwriter, if any, at
least one executed original of the registration statement and such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, as may reasonably be requested by
such Selling Stockholder;
(d) use all reasonable efforts (i) to register or qualify all shares
of Common Stock or Common Stock Equivalents covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions where an
exemption is not available as the Selling Stockholders shall reasonably request,
(ii) to keep such registration or qualification in effect for so long as such
registration statement remains in effect and (iii) to take any other action
which may be reasonably necessary or advisable to enable the Selling
Stockholders to consummate the disposition in such jurisdictions of such Common
Stock or Common Stock Equivalents; provided that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, subject itself to taxation in any such jurisdiction or take
any action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Stockholders and the managing underwriter, if
any, promptly, and confirm such advice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to a registration statement or related prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the registered
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or information
becoming known which requires the making of any changes in a registration
statement or related prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (vi) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v)
above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document
<PAGE> 44
28
so that, as thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(h) use its best efforts to furnish to the Selling Stockholders a
signed counterpart, addressed to the Selling Stockholders and the underwriters,
if any, of (A) an opinion of counsel for the Company, and (B) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of the accountant's letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities (and dated the dates such opinions and comfort
letters are customarily dated) and, in the case of the accountant's letter, such
other financial matters, and in the case of the legal opinion, such other legal
matters, as the Selling Stockholders or the underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Selling Stockholders
an earnings statement satisfying the provisions of Section 10(a)(i) of the
Securities Act and Rule 158 promulgated thereunder, no later than 90 days after
the end of any 12-month period beginning after the effective date of a
registration statement pursuant to which shares of Common Stock or Common Stock
Equivalents are sold, which statement shall cover such 12-month period;
(j) cooperate with the Selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock or Common Stock Equivalents to
be sold; and enable such shares of Common Stock or Common Stock Equivalents to
be in such denominations and registered in such names as the Selling
Stockholders or the managing underwriters, if any, may request at least two
Business Days prior to any sale of shares of Common Stock or Common Stock
Equivalents to the underwriters;
(k) use its best efforts to cause the shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by the applicable
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Selling
Stockholder(s) or the underwriters, if any, to consummate the disposition of
such shares of Common Stock or Common Stock Equivalents;
(l) cause all shares or units of Common Stock or Common Stock
Equivalents, as the case may be, covered by the registration statement to be
listed on each securities exchange, if any, on which securities of such class,
series and form issued by the Company, if any, are then listed if requested by
the managing underwriters, if any, or the holders of a majority of the shares or
units of Common Stock or Common Stock Equivalents covered by the registration
statement and entitled hereunder to be so listed;
<PAGE> 45
29
(m) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
(n) as soon as practicable prior to the filing of any document which
is to be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement) provide copies
of such document to counsel to the Selling Stockholders and to the managing
underwriters, if any, and make the Company's representatives available for
discussion of such document and consider in good faith making such changes in
such document prior to the filing thereof as counsel for such Selling
Stockholders or underwriters may reasonably request.
The Company may require each Selling Stockholder to furnish to the
Company such information regarding such Selling Stockholder and the distribution
of such securities as the Company may from time to time reasonably request in
writing in order to comply with the Securities Act.
The Selling Stockholders agree that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue
disposition pursuant to such registration statement of any shares of Common
Stock or Common Stock Equivalents, as the case may be, covered by such
registration statement or prospectus until their receipt of the copies of the
supplemented or amended prospectus relating to such registration statement or
prospectus or until they are advised in writing by the Company that the use of
the applicable prospectus may be resumed (and the period of such discontinuance
shall be excluded from the calculation of the period specified in clause (x) of
Section 4.3(a)) and, if so directed by the Company, will deliver to the Company
(at the Company's expense, except as otherwise provided in Section 4.1(d)) all
copies, other than permanent file copies then in their possession, of the
prospectus covering such securities in effect at the time of receipt of such
notice. The Selling Stockholders agree to furnish the Company a signed
counterpart, addressed to the Company and the underwriters, if any, of an
opinion of counsel for the Selling Stockholders covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of selling stockholder's counsel
delivered to the underwriters in underwritten public offerings of securities
(and dated the dates such opinions are customarily dated) and such other legal
matters as the Company or the underwriters may reasonably request.
4.4 Underwritten Offerings.
(a) Demand Underwritten Offerings. In any underwritten offering
pursuant to a registration requested under Section 4.1, the Company will use its
best efforts to enter into an underwriting agreement for such offering with the
underwriters selected by the Requesting Stockholder, such agreement and
underwriters to be reasonably satisfactory in form and substance to the Company,
the Requesting Stockholder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type. The Selling Stockholders who
hold shares of Common Stock to be
<PAGE> 46
30
distributed by such underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
them and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to their
obligations. The Company may require that any or all of the representations and
warranties by, and the other agreements on the part of the Selling Stockholders
to and for the benefit of such underwriters shall also be made to and for the
benefit of the Company with due regard to the amount of Securities being sold by
such Selling Stockholder and the nature of such representations, warranties and
agreements and the underwriting.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any shares of its Common Stock or Common Stock Equivalents
under the Securities Act as contemplated by Section 4.2 and such Securities are
to be distributed by or through one or more underwriters, the Company and the
Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents
to be distributed by such underwriters in accordance with Section 4.2 hereof
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of them and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to their obligations. The Company may, at its option, require that any
or all of the representations and warranties by, and the other agreements on the
part of the Selling Stockholders to and for the benefit of such underwriters
shall also be made to and for the benefit of the Company with due regard to the
amount of Securities being sold by such Selling Stockholder and the nature of
such representations, warranties and agreements and the underwriting.
4.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Stockholders, the
underwriters and their respective counsels and accountants a reasonable
opportunity (but such Persons shall not have the obligation) to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the SEC, and, to the extent practicable, each amendment thereof or
supplement thereto, and, subject to the execution and delivery of a customary
confidentiality agreement, will give each of them such access to its books and
records (to the extent customarily given to the underwriters of the Company's
securities), and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary to conduct a reasonable investigation
within the meaning of the Securities Act.
4.6 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause shares of Common Stock and Common Stock Equivalents to be
registered under the Securities Act are subject to each of the following
limitations, conditions and qualifications:
<PAGE> 47
31
(a) The Company shall be entitled to postpone for a reasonable
period of time the filing or effectiveness of, or suspend the rights of Selling
Stockholders to make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (i) 15 days after the cessation of the circumstances described in
clauses (A) and (B) below or (ii) 120 days after the date of the determination
of the Board of Directors of the Company referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (i) of Section 4.3(a)) if the Board of Directors of
the Company determines in good faith that (A) there is a material undisclosed
development in the business or affairs of the Company (including any pending or
proposed financing, recapitalization, acquisition or disposition), the
disclosure of which at such time could be adverse to the Company's interests or
(B) the Company has filed a registration statement with the SEC, such
registration statement has not yet been declared effective, the Company is using
its reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such registration would be adversely affected. If the Company shall so delay the
filing of a registration statement, it shall, as promptly as possible, notify
the Selling Stockholders of such determination, and the Selling Stockholders
shall have the right (x) in the case of a postponement of the filing or
effectiveness of a registration statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (y) in the case of a suspension of the right
to make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company shall not be required hereby to include shares of
Common Stock or Common Stock Equivalents in a registration statement if, in the
written opinion (to be issued to, and relied upon by, the Stockholders seeking
inclusion) of outside counsel to the Company of recognized standing in
securities law matters, the beneficial owners of such Common Stock or Common
Stock Equivalents seeking registration would be free to sell all of such shares
of Common Stock or Common Stock Equivalents within the current calendar quarter
without registration under Rule 144 under the Securities Act.
(c) The Company's obligations shall be subject to the obligations of
the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish
all information and materials and to take any and all actions as may be required
under applicable federal and state securities laws and regulations to permit the
Company to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such registration statement.
(d) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
4.7 Expenses. The Company and Sheridan jointly and severally agree
to pay all reasonable out-of-pocket costs and expenses incurred in connection
with each registration of Common Stock or Common Stock Equivalents pursuant to
this Agreement, including, without limitation, the reasonable fees and
disbursements of a single firm of outside counsel retained by Selling
Stockholders which beneficially own a majority of the total number of shares or
units of Common Stock or Common Stock Equivalents being registered by Selling
Stockholders (the
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32
"Majority Selling Stockholders"), and any and all filing fees payable to the
SEC, fees with respect to filings required to be made with stock exchanges, the
NASDAQ and the NASD, fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of a single firm of
outside counsel for the underwriters or the Majority Selling Stockholders in
connection with blue sky qualifications of the Common Stock or Common Stock
Equivalents being registered and determination of its eligibility for investment
under the laws of such jurisdictions as the Selling Stockholders may designate),
printing expenses, fees and disbursements of counsel and accountants of the
Company, including costs associated with comfort letters, and fees and expenses
of other Persons retained by the Company, but excluding underwriters' expenses
(including discounts, commissions or fees of underwriters and expenses included
therein, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the securities being registered or
legal expenses of any Person other than the Company and the Selling
Stockholders) but including the fees and expenses of any qualified independent
underwriter required to participate in such registration pursuant to applicable
law or the requirements of the NASD. The Company and its Subsidiaries shall, in
any event in all cases, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), and the expense of securities law liability
insurance and rating agency fees, if any.
4.8 Indemnification.
(a) Indemnification by the Company. In connection with any
registration pursuant hereto in which shares of Common Stock or Common Stock
Equivalents are to be disposed of, the Company shall indemnify and hold
harmless, to the full extent permitted by law, each holder of such Common Stock
or Common Stock Equivalents to be disposed of and, when applicable, its
officers, directors, agents and employees and each Person who controls such
holder (within the meaning of the Securities Act or the Exchange Act) against
all losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, including, without
limitation, any loss, claim, damage, liability or expense resulting from the
failure to keep a prospectus current, except insofar as the same (i) are caused
by or contained in any information relating to such holder furnished in writing
to the Company by such holder expressly for use therein or (ii) are caused by
such holder's failure to deliver a copy of the current prospectus simultaneously
with or prior to such sale after the Company has furnished such holder with a
sufficient number of copies of such prospectus correcting such material
misstatement or omission or (iii) arise in respect of any offers to sell or
sales made during any period when a holder is required to discontinue sales
under Section 4.3(e) (and after such holder has received in writing the notice
contemplated by Section 4.3(e)). The Company shall also indemnify underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each person
who controls such Persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the holders of
such Common Stock or Common Stock Equivalents to be disposed of, and shall enter
into an indemnification agreement with such Persons containing such terms, if
requested.
<PAGE> 49
33
(b) Indemnification by Stockholders. In connection with each
registration statement effected pursuant hereto in which shares of Common Stock
or Common Stock Equivalents are to be disposed of, each Selling Stockholder
shall, severally but not jointly, indemnify and hold harmless, to the full
extent permitted by law, the Company, each other Selling Stockholder and their
respective directors, officers, agents and employees and each Person who
controls the Company and each other Selling Stockholder (within the meaning of
the Securities Act or the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in such registration
statement or prospectus or preliminary prospectus or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue statement or omission relates to such Selling Stockholder and is
contained in any information furnished in writing by such Selling Stockholder or
any of its Affiliates to the Company expressly for inclusion in such
registration statement or prospectus. In no event shall the liability of any
Selling Stockholder hereunder be greater in amount than the dollar amount of the
proceeds actually received by such Selling Stockholder upon the sale of the
securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder shall give prompt notice to the indemnifying party of
any claim with respect to which it shall seek indemnification and shall permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the indemnifying party shall have agreed to pay such fees or expenses, or (ii)
the indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (iii) in the opinion of
outside counsel to such Person there may be one or more legal defenses available
to such Person which are different from or in addition to those available to the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). If such defense is not assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent (but such consent shall not be unreasonably withheld). No
indemnified party shall be required to consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a written
release in form and substance reasonably satisfactory to such indemnified party
from all liability in respect of such claim or litigation. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim shall
not be obligated to pay the fees and expenses of more than one firm of counsel
(and, if necessary, local counsel) for all parties indemnified by such
indemnifying party with respect to such claim, unless in the written opinion of
outside counsel to an indemnified party a conflict of interest as to the subject
matter exists between such indemnified party and another indemnified party with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel for such indemnified party.
<PAGE> 50
34
(d) Contribution. If for any reason the indemnification provided for
herein is unavailable to an indemnified party or is insufficient to hold it
harmless as contemplated hereby, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of any Selling Stockholder for
such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received by such Selling Stockholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
4.9 Participation in Underwritten Registrations. No Stockholder or
Permitted Transferee may participate in any underwritten registration hereunder
unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of
Common Stock or Common Stock Equivalents on the basis provided in and in
compliance with any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7
under the Exchange Act, and (b) completes and executes all questionnaires,
appropriate and limited powers of attorney, escrow agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements; provided that all such documents shall be
consistent with the provisions hereof.
4.10 Rule 144. The Company hereby covenants that after it has filed
(and such registration statement has become effective) a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of
Common Stock, the Company will file in a timely manner all reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any Stockholder, make publicly
available other information so long as necessary to permit sales by such
Stockholder under Rule 144 under the Securities Act) and will take such further
action as any Stockholder may reasonably request to the extent required from
time to time to enable such Stockholder to sell shares of Common Stock under
Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management
Investor shall Transfer shares of Common Stock under Rule 144 unless expressly
permitted to do so by the terms of this Agreement.
4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any
of its shares of Common Stock or Common Stock Equivalents is included in a
registration statement filed by the Company in connection with an underwritten
public offering it shall not effect any public sale or distribution of shares of
Common Stock or Common Stock Equivalents during the 30 days prior to or the 180
day period beginning on the effective date of such registration statement
(except as part of such registration) if and to the extent reasonably requested
in writing (with reasonable prior notice) by the managing underwriter of the
underwritten public offering.
(b) The Company agrees not to effect any primary public sale or
distribution of any Common Stock or Common Stock Equivalents, as the case may
be, during the 10 days prior to and the 180 day period beginning on the
effective date of any registration statement in which
<PAGE> 51
35
any Stockholder is participating in connection with an underwritten public
offering of Common Stock or Common Stock Equivalents, as the case may be, if and
to the extent reasonably requested in writing (with reasonable prior notice) by
the managing underwriter of the underwritten public offering.
4.12 Mezzanine Securities. Notwithstanding anything to the contrary
herein, the Company may grant registration rights to holders of Mezzanine
Securities which are more, as or less favorable to such holders than the
registration rights of the parties hereto. To the extent that Mezzanine
Securities consist of Common Stock or Common Stock Equivalents, holders of
Mezzanine Securities may be given the right by the Company to participate in
registrations as if such holders were Stockholders, and the Company shall not be
obliged hereunder to comply with any provision of this Section 4 in respect of a
registration of Mezzanine Securities.
SECTION 5. MISCELLANEOUS
5.1 Additional Securities Subject to Agreement. Each Stockholder
agrees that any other Securities which it shall hereafter acquire by means of a
stock split, stock dividend, distribution, exercise of stock options, or
otherwise (other than Mezzanine Securities or pursuant to a Public Offering or
Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the
same extent as if held on the date hereof.
5.2 Termination. Except as otherwise provided herein, this Agreement
shall terminate, and thereby become null and void, as to any particular
Securities, on the date on which they are sold in a Public Offering or are sold
pursuant to Rule 144 under the Securities Act (unless such Securities are
reacquired by a Stockholder).
5.3 Injunctive Relief. The Stockholders and their Permitted
Transferees acknowledge and agree that a violation of any of the terms of this
Agreement will cause the Stockholders and their Permitted Transferees
irreparable injury for which adequate remedy at law is not available.
Accordingly, it is agreed that each Stockholder and Permitted Transferee shall
be entitled to an injunction, restraining order or other equitable relief to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction in the
United States or any state thereof, in addition to any other remedy to which
they may be entitled at law or equity.
5.4 Other Stockholders' Agreements. None of the Stockholders shall
enter into any stockholder agreement or other arrangement of any kind with any
Person with respect to any Securities which is inconsistent with the provisions
of this Agreement or which may impair its ability to comply with this Agreement.
5.5 Amendments. This Agreement may be amended only by a written
instrument signed (a) by Vestar, so long as it or its Affiliates own Securities,
and (b) by Stockholders other than Vestar and its Affiliates which own on a
fully diluted basis Securities representing at least a majority of the voting
power represented by all Securities outstanding on a fully diluted basis and
owned by all Stockholders other than Vestar and its Affiliates.
<PAGE> 52
36
5.6 Successors, Assigns and Transferees. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their Permitted Transferees and their respective successors, each of
which Permitted Transferees shall agree, in a writing in form and substance
satisfactory to the Company and the owners on a fully diluted basis of
Securities representing at least a majority of the voting power represented by
all Securities outstanding on a fully diluted basis and owned by all
Stockholders, to become a party hereto and be bound to the same extent as its
transferor hereby, provided that no Stockholder may assign to any Permitted
Transferee any of its rights hereunder other than in connection with a Transfer
to such Permitted Transferee of Securities in accordance with the provisions of
this Agreement.
5.7 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or when delivered by a
recognized courier or, in the case of telecopy notice, when received, addressed
as follows to the parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
if to the Company, Sheridan or Vestar, to it:
c/o Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Facsimile: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Facsimile: (212) 455-2502
if to any other Stockholder, to such Stockholder at such
Stockholder's address or telecopy number set forth in the books
and records of the Company.
5.8 Integration. This Agreement and the documents referred to herein
or delivered pursuant hereto contain the entire understanding of the parties
with respect to the subject matter hereof and thereof. There are no agreements,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof and thereof other than those expressly set forth herein
and therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE> 53
37
5.9 Severability. If one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
5.11 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
except for matters directly within the purview of the General Corporation Law of
the State of Delaware (the "DGCL"), which shall be governed by the DGCL.
5.12 Jurisdiction. Any action to enforce, which arises out of or in
any way relates to, any of the provisions of this Agreement may be brought and
prosecuted in such court or courts located within the States of New York as
provided by law; and the parties consent to the jurisdiction of such court or
courts located within the States of New York and to service of process by
registered mail, return receipt requested, or by any other manner provided by
New York law.
5.13 Management Investors. Each employee or director of the Company
or any of its Subsidiaries who becomes party to a stock subscription agreement
or option agreement with any of the Company and its Subsidiaries after the date
hereof shall become a party hereto and shall be bound hereby. The Company shall
not issue any securities to an employee or director of the Company or any of its
Subsidiaries unless he or she enters into a supplementary agreement with the
Company agreeing to be bound by the terms hereof in the same manner as the other
Management Investors. Each such supplementary agreement shall become effective
upon its execution by the Company and such employee or director, and it shall
not require the signature or consent of any other party hereto. Such
supplementary agreement may modify some of the terms hereof as they effect such
employee or director; provided that the modified terms shall be no more
favorable to such employee or director than the terms set forth herein.
5.14 83(b) Election. Promptly after the Closing Date, each
Management Investor shall, with respect to all Securities beneficially owned by
such Management Investor, make a timely election under Section 83(b) of the Code
in accordance with applicable Regulations thereunder.
5.15 Management Investor Representative. Each Management Investor
hereby designates and appoints (and each Permitted Transferee of each such
Management Investor shall be deemed to have so designated and appointed)
Mitchell Eisenberg, with full power of substitution (the "Management Investor
Representative") as the representative of each such Person to perform all such
acts as are required, authorized or contemplated by this Agreement to
<PAGE> 54
38
be performed by any such Person and hereby acknowledges that the Management
Investor Representative shall be the only Person authorized to take any action
so required, authorized or contemplated by this Agreement by each such Person.
Each such Person further acknowledges that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive the
death or incapacity of such Person. Each such Person hereby authorizes (and each
Permitted Transferee shall be deemed to have authorized) the other parties
hereto to disregard any notice or other action taken by such Person pursuant to
this Agreement on any action so taken or any notice given by the Management
Investor Representative and are and will be entitled and authorized to give
notices only to the Management Investor Representative for any notice
contemplated by this Agreement to be given to any such Person. A successor to
the Management Investor Representative may be chosen by Management Investors
which own on a fully diluted basis Securities representing at least a majority
of the voting power represented by all Securities outstanding on a fully diluted
basis and owned by all Management Investors, provided that written notice
thereof is given by the successor to the Management Investor Representative to
the Company. Whenever any action or consent (but not any forbearance) is
required to be taken or given by the Management Investors, the action or consent
of the Management Investor Representative shall be considered the act or consent
of all the Management Investors, and Vestar and the Company shall be protected
in relying on such act or consent.
5.16 Covenant Not to Compete. (a) Each Management Investor who is
not a Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
non-competition provision hereby covenants and agrees that, except as provided
below, during the Term of Employment and the Non-Competition Period, the
Management Investor shall not, without the express written consent of the
Company, directly or indirectly, engage in any activity which is, or participate
or invest in or assist (whether as owner, part-owner, stockholder, partner,
director, officer, trustee, employee, agent, independent contractor or
consultant, or in any other capacity) any Competitive Enterprise, except that
the Management Investor may make passive investments in a Competitive Enterprise
the shares of which are publicly traded if such investment constitutes less than
one percent of the equity of such enterprise. Without implied limitation, the
forgoing covenant shall include hiring or attempting to hire for or on behalf of
any such Competitive Enterprise any officer or other employee of Sheridan or any
Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee
to terminate his or her relationship or employment with Sheridan or any
Affiliate of Sheridan, soliciting for or on behalf of any such Competitive
Enterprise any client or customer (including any Medical Customer) of Sheridan
or any Affiliate of Sheridan, and diverting to any Person, any client or
business opportunity of Sheridan or any Affiliate of Sheridan.
(b) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period, each
Management Investor who is not a Senior Management Investor and who is not a
party to a written employment agreement with the Company or any of its
Subsidiaries that contains a non-competition provision shall not devote any time
to consulting, lecturing or engaging in other self-employment or employment
activities without the prior written consent of Sheridan.
(c) This Section 5.16 shall survive the termination of this
Agreement.
<PAGE> 55
39
5.17 Business Opportunities. Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a business
opportunities provision agrees, while he is employed by any of the Company and
its Subsidiaries, to offer or otherwise make known or available to the Company
or any Subsidiary, as directed by the Company and without additional
compensation or consideration, any business prospects, contracts or other
business opportunities that he may discover, find, develop or otherwise have
available to him in any field in which the Company or any of its Affiliates is
engaged, and further agrees that any such prospects, contracts or other business
opportunities shall be the property of the Company.
5.18 Confidentiality. (a) Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
confidentiality provision acknowledges that the Management Investor has and will
necessarily become informed of, and have access to, certain valuable and
confidential information of the Company and its Affiliates, including, without
limitation, trade secrets, technical information, plans, lists of patients,
data, records, fee schedules, computer programs, manuals, processes, methods,
intangible rights, contracts, agreements, licenses, personnel information and
the identity of health care providers (collectively, the "Confidential
Information"), and that the Confidential Information, even though it may be
contributed, developed or acquired in whole or in part by the Management
Investor, is the Company's exclusive property to be held by the Management
Investor in trust and solely for the Company's benefit. Accordingly, except as
required by law, the Management Investor shall not, at any time, either during
or subsequent to the Term of Employment, use, reveal, report, publish, copy,
transcribe, Transfer or otherwise disclose to any person, corporation or other
entity, any of the Confidential Information without the prior written consent of
the Company, except to responsible officers and employees of the Company and its
Subsidiaries and other responsible persons who are in a contractual or fiduciary
relationship with the Company or one of its Subsidiaries and except for
information which legally and legitimately is or becomes of general public
knowledge from authorized sources other than the Management Investor.
(b) Upon the termination of the Term of Employment, each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a confidentiality provision shall promptly deliver to the Company all
property and possessions of the Company and its Subsidiaries, including all
drawings, manuals, letters, notes, notebooks, reports, copies, deliverable
Confidential Information and all other materials relating to the Company's and
its Subsidiaries' business which are in the Management Investor's possession or
control.
5.19 Effectiveness. This Agreement shall become effective on the
Closing Date.
<PAGE> 56
40
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg
---------------------------------
Name: Mitchell Eisenberg
VESTAR/CALVARY INVESTORS, LLC
By: VESTAR CAPITAL PARTNERS III, L.P.,
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
<PAGE> 57
/s/ Mitchell Eisenberg
--------------------------------------
MITCHELL EISENBERG
/s/ Lewis D. Gold
--------------------------------------
LEWIS D. GOLD
/s/ Michael F. Schundler
--------------------------------------
MICHAEL F. SCHUNDLER
/s/ Jay a. Martus
--------------------------------------
JAY A. MARTUS
/s/ Gilbert L. Drozdow
--------------------------------------
GILBERT L. DROZDOW
<PAGE> 58
SCHEDULE 1
INITIAL OTHER
MANAGEMENT INVESTORS
GILBERT L. DROZDOW
<PAGE> 59
Exhibit B
Vestar/Calvary Holdings, Inc.
1999 Stock Option Plan
SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary
Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional
officers, key employees and outside directors of, and consultants to, the
Company and its Subsidiaries and (ii) enabling such individuals to participate
in the long-term growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean any entity that, directly or indirectly, is
controlled by, controls or is under common control with, the Company.
"Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Option, which may, but need
not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the earlier to occur of (x) the date
of the sale or disposition, in one or a series of related transactions, of
all or substantially all of the assets of the Company to any "person" or
"group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the
Exchange Act), other than Vestar, or (y) the date of the sale, exchange or
other disposition by Vestar and its Affiliates, in one or a series of
transactions (including, without limitation, by way of merger,
reorganization, recapitalization, consolidation, Public Offering (as
defined in the Stockholders' Agreement), sale of capital stock or assets
of Sheridan or any other Subsidiary of the Company or similar transaction
that results in the disposition, directly or indirectly, of the equity
interests of Vestar and its Affiliates (other than the Management
Investors) in the Company) (collectively, an "Exit Transaction") of 70% or
more of the sum of (1) their equity interest in the Company immediately
following the Closing Date (as defined in the Stockholders'sAgreement)
plus (2) any additional capital contributions to, or investments in, the
Company made by any of Vestar and its Affiliates after the Closing Date
(clauses (1) and (2), collectively, the "Aggregate Investment"); provided
that, in the case of (y) either (A) the consideration received by Vestar
and its Affiliates in the Exit Transaction for 70% or more of the
Aggregate Investment is cash or securities that are distributed in kind to
the limited partners of Vestar Capital Partners III, L.P. and its
Affiliates or a combination thereof or (B) the Exit Transaction results in
(i) designees of Vestar and its Affiliates not constituting a majority of
the Board of Directors (or analogous governing body) of the Company and
(ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding
<PAGE> 60
2
securities of the Company entitled to vote generally in the election of
directors (or members of an analogous governing body) of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the compensation committee of the Board, or
such other committee of the Board as may be designated by the Board to
administer the Plan.
"Company" shall have the meaning specified in the Stockholders'
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall have the meaning specified in the
Stockholders' Agreement.
"Management Investor" shall have the meaning specified in the
Stockholders' Agreement.
"Option" shall mean a right to purchase Shares from the Company that
is granted under Section 6 of the Plan.
"Participant" shall mean any officer, key employee or outside
director of, or consultant to, the Company or its Subsidiaries eligible
for an Option under Section 5 of the Plan and selected by the Committee to
receive an Option under the Plan.
"Performance Option" shall mean an Option granted under the Plan
which becomes exercisable, or for which the period of exercisability is
accelerated, upon the satisfaction of certain performance criteria
established by the Committee and set forth in the Award Agreement
evidencing such option.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock
Option Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by
the SEC under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the staff thereof.
"Shares" shall mean (i) shares or units of Common Stock (as defined
in the Stockholders' Agreement) or (ii) as may be determined by the
Committee pursuant to Section 4(b).
<PAGE> 61
3
"Stockholders' Agreement" shall mean the Agreement, dated as of
March 24, 1999, among the Company and the other parties identified
therein.
"Subsidiary" shall mean any entity that, directly or indirectly,
is controlled by the Company.
"Substitute Options" shall have the meaning specified in Section
4(c).
"Time Option" shall mean an Option granted under the Plan, which is
not a Performance Option, and which becomes exercisable over time based on
a Participant's continued employment with the Company or its Subsidiaries.
"Vestar" shall mean Vestar Capital Partners III, L.P. and any of
its Affiliates.
SECTION 3. Administration. (a) The Plan shall be administered by the
Committee. Subject to the terms of the Plan, any Award Agreement and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Options to be
granted to a Participant; (iii) determine the number of Shares to be covered by,
or with respect to which payments, rights, or other matters are to be calculated
in connection with, Options; (iv) determine the terms and conditions of any
Option; (v) determine whether, to what extent, and under what circumstances
Options may be settled or exercised in cash, Shares, other securities, other
Options or other property, or canceled, forfeited, or suspended and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Options, other property, and other amounts
payable with respect to an Option shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret,
administer, reconcile any inconsistency, correct any default and/or supply any
omission in the Plan and any instrument or agreement relating to, or Option made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan and subject to the
terms of any Award Agreement, all designations, determinations, interpretations,
and other decisions under or with respect to the Plan or any Option shall be
within the sole discretion of the Committee, may be made at any time and shall
be final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Option, and any
holder of Shares.
(c) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option
hereunder.
<PAGE> 62
4
SECTION 4. Shares Available for Options.
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
the aggregate number of Shares with respect to which Options may be granted
under the Plan shall be 1,150,000; provided, however, that in no event shall the
number of Shares subject to Time Options granted under the Plan exceed 666,667.
If, after the effective date of the Plan, any Shares covered by an Option
granted under the Plan, or to which such an Option relates, are forfeited, or if
an Option has expired, terminated or been cancelled for any reason whatsoever
(other than by reason of exercise or vesting), then the Shares covered by such
Option shall again be, or shall become, Shares with respect to which Options may
be granted hereunder.
(b) Adjustments. In the event that the Committee determines that any Exit
Transaction, dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee in its
discretion to be necessary or appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it in good faith
deems equitable, adjust any or all of (i) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Options may be granted, (ii) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
subject to outstanding Options, and (iii) the exercise price with respect to any
Option or, if deemed appropriate in connection with a Change of Control, make
provision for an immediate cash payment to the holder of an outstanding Option
in consideration for the cancellation of such Option in an amount equal to the
excess, if any, of the Fair Market Value of the Shares subject to the Options
over the aggregate exercise price of such Option.
(c) Substitute Options. Options may be granted, in the discretion of the
Committee, under the Plan in assumption of, or in substitution for, outstanding
awards previously granted by a company acquired by the Company or with which the
Company combines ("Substitute Options"). The number of Shares underlying any
Substitute Options shall be counted against the aggregate number of Shares
available for Options under the Plan.
(d) Sources of Shares Deliverable Under Options. Any Shares delivered
pursuant to an Option may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any officer, key employee or outside director of,
or consultant to, the Company or any of its Subsidiaries (including any
prospective officer or key employee) shall be eligible to be designated a
Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Options shall
be granted, the
<PAGE> 63
5
number of Shares to be covered by each Option, the exercise price therefor and
the conditions and limitations applicable to the exercise of the Option. None of
the Options granted under the Plan are intended to meet the requirements of
Section 422 of the Code or any successor provision thereto.
(b) Exercise Price. The Committee shall establish the exercise price at
the time each Option is granted, which exercise price shall be set forth in the
applicable Award Agreement.
(b) Exercise. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award Agreement or, with the consent of the
Participant thereafter. The Committee may impose such conditions with respect to
the exercise of Options, including without limitation, any relating to the
application of federal or state securities laws, as it may deem necessary or
advisable.
(c) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Such payment shall be made in cash or by bank check or,
subject to the consent of the Committee in its sole discretion, in Shares which
have been owned by the Participant for at least six months, such Shares to be
valued at their Fair Market Value as of the date of exercise.
SECTION 7. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that any such amendment, alteration, suspension, discontinuance or termination
that would impair the rights of any Participant or any holder or beneficiary of
any Option theretofore granted shall not to that extent be effective without the
consent of the affected Participant, holder or beneficiary.
(b) Amendments to Options. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Option theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment or
alteration that would impair the rights of any Participant or any holder or
beneficiary of any Option theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary. In addition, with the consent of any Participant, holder or
beneficiary, the Company may suspend, discontinue, cancel or terminate any
Option theretofore granted, prospectively or retroactively
(c) Adjustment of Options Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the performance criteria applicable to outstanding Performance Options in the
event of any extraordinary and nonrecurring events affecting the Company or its
Subsidiaries, or the financial statements of the Company or its Subsidiaries, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines in good faith that such adjustments are necessary in
order to prevent dilution or enlargement of rights under such Performance
Options.
<PAGE> 64
6
SECTION 8. Change of Control. In the event of a Change of Control after
the date of the adoption of this Plan, (i) any outstanding Time Options then
held by Participants, which are unexercisable or otherwise unvested, shall
automatically be deemed exercisable or otherwise vested, as the case may be, as
of immediately prior to such Change of Control and (ii) any outstanding
Performance Options, whether exercisable or not, then held by Participants,
shall continue to be governed by the terms of each such Participant's Award
Agreement.
SECTION 9. General Provisions.
(a) Nontransferability.
(i) Each Option shall be exercisable only by the Participant during the
Participant's lifetime, or, if permissible under applicable law, by the
Participant's legal guardian or representative. No Option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant otherwise than by will or by the laws of descent and distribution
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(ii) Notwithstanding the foregoing, the Committee may in the applicable
Award Agreement evidencing an Option granted under the Plan or at any time
thereafter in an amendment to an Award Agreement provide that Options granted
hereunder may be transferred by the Participant to whom such Option was granted
(the "Grantee") without consideration, subject to such rules as the Committee
may adopt to preserve the purposes of the Plan, to:
(A) the Grantee's spouse, children or grandchildren (including
adopted and stepchildren and grandchildren) (collectively, the "Immediate
Family");
(B) a trust solely for the benefit of the Grantee and his or her
Immediate Family; or
(C) a partnership or limited liability company whose only partners
or members are the Grantee and his or her Immediate Family members;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); provided that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the requirements
of the Plan and any applicable Award Agreement evidencing the Option.
The terms of any Option transferred in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee and any
reference in the Plan or in an Award Agreement to an optionee, Grantee or
Participant shall be deemed to refer to the Permitted Transferee, except
that (a) Permitted Transferees shall not be entitled to transfer any
Options, other than by will or the laws of descent and distribution; (b)
Permitted Transferees shall not be entitled to exercise any transferred
Options unless
<PAGE> 65
7
there shall be in effect a registration statement on an
appropriate form covering the Shares to be acquired pursuant to the
exercise of such Option if the Committee determines that such a
registration statement or form is necessary or appropriate, (c) the
Committee or the Company shall not be required to provide any notice to a
Permitted Transferee, provided all required notices are given to the
Grantee and (d) the consequences of termination of the Grantee's
employment by, or services to, the Company or any of its Affiliates under
the terms of the Plan and the applicable Award Agreement shall continue to
be applied with respect to the Grantee, following which the Options shall
be exercisable by the Permitted Transferee only to the extent, and for the
periods, specified in the Plan and the applicable Award Agreement.
(b) No Rights to Options. No Participant or other Person shall have any
claim to be granted any Option, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Options. The terms and
conditions of Options and the Committee's determinations and interpretations
with respect thereto need not be the same with respect to each Participant
(whether or not such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other securities of
the Company delivered under the Plan pursuant to any Option or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or other
securities are then listed, any applicable Federal or state laws, and any
applicable written agreements between Vestar and/or the Company and the
Participants including, without limitation, the Stockholders' Agreement, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(d) Withholding.
(i) A Participant shall be required to pay to the Company or any
Affiliate and the Company shall have the right and is hereby authorized to
withhold, any applicable withholding taxes in respect of an Option, its exercise
or any payment or transfer under an Option or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such withholding taxes.
(ii) Notwithstanding any provision of this Plan to the contrary, in
connection with the transfer of an Option to a Permitted Transferee pursuant to
Section 9(a) of the Plan, the Grantee shall remain liable for any withholding
taxes required to be withheld upon the exercise of such Option by the Permitted
Transferee.
(e) Award Agreements. Each Option hereunder shall be evidenced by an Award
Agreement, which shall be delivered to the Participant and shall specify the
terms and conditions of the Option and any rules applicable thereto, including
but not limited to the effect on such Option of the death, disability or
termination of employment or service of a Participant, and the effect, if any,
of such other events as may be determined by the Committee.
(f) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other
<PAGE> 66
8
compensation arrangements, which may, but need not, provide for the grant of
options (subject to stockholder approval if such approval is required), and such
arrangements may be either generally applicable or applicable only in specific
cases.
(g) No Right to Employment. The grant of an Option shall not be construed
as giving a Participant the right to be retained in the employ of, or in any
consulting relationship to, the Company or any Affiliate. Further, the Company
or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(h) No Rights as Stockholder. Subject to the provisions of the applicable
Option, no Participant or holder or beneficiary of any Option shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares.
(i) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of New York.
(j) Severability. If any provision of the Plan or any Option is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Option, or would disqualify the Plan or any Option under any
law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Option, such provision shall be stricken
as to such jurisdiction, Person or Option and the remainder of the Plan and any
such Option shall remain in full force and effect.
(k) Other Laws. The Committee may refuse to issue or transfer any Shares
or other consideration under an Option if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration will violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Option shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Option granted hereunder shall be construed as an offer to
sell securities of the Company, and no such offer shall be outstanding, unless
and until the Committee in its sole discretion has determined that any such
offer, if made, would be in compliance with all applicable requirements of the
U.S. federal and any other applicable securities laws.
(l) No Trust or Fund Created. Neither the Plan nor any Option shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Option, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
<PAGE> 67
9
(m) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(n) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the persons and/or entities who own, immediately after giving effect
to the Effective Time (as defined in the Agreement and Plan of Merger dated as
of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and
Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding
stock of the Company, determined in a manner consistent with Section 280G(b)(5)
of the Internal Revenue Code of 1986, as amended and the proposed regulations
promulgated thereunder. If such approval is not obtained, this Plan and any
Options granted under the Plan shall be null and void and of no force and
effect.
(b) Expiration Date. No Option shall be granted under the Plan after
December 31, 2009. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Option granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Option or to waive any conditions or rights under any such
Option shall, continue after December 31, 2009.
SECTION 11. Awards Subject to Stockholders' Agreement.
Options granted under the Plan and any Shares delivered upon the exercise
or settlement of any Options granted hereunder shall be subject to the
Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement
as it may be amended from time to time are hereby incorporated herein by
reference. In the event of a conflict between any term or provision contained
herein and any terms or provisions of the Stockholders' Agreement, the
applicable provisions of the Stockholders' Agreement will govern and prevail.
<PAGE> 68
Exhibit C
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
PERFORMANCE OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - ----------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 69
2
(a) Time Vesting.
Subject to paragraphs (b), (c) and (d) of this Section 2, the Option
shall vest and become exercisable in full on the ninth anniversary of the
purchase of shares of common stock of Sheridan pursuant to the Offer (the date
of such purchase being the "Purchase Date").
(b) Accelerated Vesting Based Upon Performance.
(i) Subject to the Participant's continued employment with the
Company, the Option shall vest and become exercisable on an accelerated basis
with respect to up to twenty-five percent (25%) of the Shares initially covered
by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting
Shares") on each of the first, second, third and fourth anniversaries of the
Purchase Date (each an "Accelerated Vesting Date") as follows:
(A) With respect to each Accelerated Vesting Date, 100% of
the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity
Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending
immediately prior to the applicable Accelerated Vesting Date (such last day of
the fiscal year being referred to as the "Determination Date") equals or exceeds
the Maximum Annual Price Target (described below) for such Determination Date;
(B) With respect to each Accelerated Vesting Date, 0% of the
Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per
Share as of the applicable Determination Date is less than or equal to the
Minimum Annual Price Target (described below) for such Determination Date; and
(C) With respect to each Accelerated Vesting Date, if the
Common Equity Per Share as of the Determination Date is less than the Maximum
Annual Price Target and greater than the Minimum Annual Price Target for such
Determination Date, then the number of Scheduled Accelerated Vesting Shares
which shall vest will equal the product of (x) 100% of the Scheduled Accelerated
Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall
equal the quotient obtained by dividing (A) the excess of the Value of Common
Equity Per Share as of the Determination Date over the Minimum Annual Price
Target for such Determination Date by (B) the excess of the Maximum Annual Price
Target as of the Determination Date over the Minimum Annual Price Target for
such Determination Date.
(ii) In the event that the Option does not vest on an accelerated
basis with respect to all of the Scheduled Accelerated Vesting Shares on an
Accelerated Vesting Date solely as a result of the failure to achieve or exceed
the applicable Maximum Annual Price Target, then the number of Scheduled Vesting
Shares with respect to which the Option did not vest on an accelerated basis
(the "Missed Shares"), will be available for vesting on the next succeeding
Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The
number of Missed Shares, if any, which will vest on an accelerated basis on the
Make-Up Vesting Date will equal the excess, if any, of (x) the number of
Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the
Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of
Scheduled Accelerated Vesting Shares which actually vested on an accelerated
basis on the immediately preceding Accelerated Vesting Date.
<PAGE> 70
3
<TABLE>
<CAPTION>
Determination Minimum Maximum
Vesting Date Date Annual Price Target Annual Price Target
- - ------------ ---- ------------------- -------------------
<S> <C> <C> <C> <C>
1st anniversary of FY Ending
Purchase Date 12/31/99 $10.18 $10.64
2nd anniversary of FY Ending
Purchase Date 12/31/00 $12.21 $13.83
3rd anniversary of FY Ending
Purchase Date 12/31/01 $14.65 $17.98
4th anniversary of FY Ending
Purchase Date 12/31/02 $17.58 $23.37
5th anniversary of FY Ending $21.10 $30.38
Purchase Date 2/31/03
(Used for 4th
anniversary
missed shares only)
</TABLE>
The determination of the Value of Common Equity Per Share for each fiscal
year shall be made by the Board in good faith based upon, and immediately
following receipt of, the audited financial statements for such fiscal year and
will be calculated (after giving effect to the issuance of all Time Options and
all Performance Options which have previously vested or which will vest in such
fiscal year) pursuant to the methodology outlined in Exhibit A.
(c) Termination of Employment
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability (as
each such term is defined in Section 3(a) below), and the Minimum Annual Price
Target for the Determination Date applicable to the next succeeding Accelerated
Vesting Date is exceeded as of such Determination Date, then the Option shall,
upon the Board's determination that the Minimum Annual Price Target for such
Determination Date has been exceeded, become vested with respect to, and the
Vested Portion of the Option shall include a number of Shares (the "Termination
Shares") equal to the sum of:
(i) the product of (A) the number of Scheduled Accelerated Vesting
Shares that would otherwise have vested pursuant to Section 2(b)(i) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) a fraction, the numerator of which is the
number of days that passed since the immediately preceding Accelerated Vesting
Date through and including the date of the Participant's
<PAGE> 71
4
termination of employment and the denominator of which is 365 (the "Termination
Fraction"); plus
(ii) If there were Missed Shares with respect to the immediately
preceding Accelerated Vesting Date, the product of (A) the number of Missed
Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) the Termination Fraction.
(d) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control, the Option shall, to the extent not previously
cancelled, immediately become vested and exercisable with respect to the
Scheduled Accelerated Vesting Shares for any remaining future Accelerated
Vesting Dates, if, and only if, in connection with the Change of Control, Vestar
receives aggregate proceeds, in cash, securities or a combination of cash and
securities, having an aggregate Fair Market Value in an amount equal to or in
excess of the product of (i) Vestar's Aggregate Investment (as defined below)
times (ii) the Minimum Investment Multiple (as defined below) applicable to the
fiscal year of the Company in which such Change of Control occurs; provided
that, securities received by Vestar shall be taken into account for purposes
hereof only if such securities are distributed by Vestar, in kind, to its
limited partners.
For purposes of this Agreement:
"Vestar's Aggregate Investment" shall mean the total amount of capital
invested by Vestar in the Company and its Subsidiaries, including investments
made in connection with the Offer, the Merger contemplated by the Merger
Agreement, or otherwise; and
"Minimum Investment Multiple" shall mean with respect to the Company's
fiscal years ending December 31, 1999 through December 31, 2003 as follows:
<TABLE>
<CAPTION>
FY In Which Change of Control Occurs Minimum Investment Multiple
- - ------------------------------------ ---------------------------
<S> <C> <C>
1999 1.22
2000 1.66
2001 2.12
2002 2.50
2003 3.26
</TABLE>
For purposes of this Section 2(d), "Fair Market Value"shall mean,
solely with respect to securities distributed by Vestar to its limited partners,
the value of such securities as reported by Vestar to such limited partners.
3. Exercise of Option.
<PAGE> 72
5
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability and, with respect to the
Termination Shares, if applicable, 30 days after the determination of the
number of Termination Shares, if later;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason and,
with respect to the Termination Shares, if applicable, 30 days after the
determination of the number of Termination Shares, if later; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in effect as of or after the Date of Grant (as the
same may be amended in accordance with the terms thereof) or if not
defined therein or if there shall be no such agreement, "Cause" shall
exist if a Participant has (i) committed an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against Vestar, Sheridan, the
Company or any Subsidiary or a felony involving the business, assets,
customers or clients of Vestar, Sheridan, the Company or any Subsidiary or
has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material
breach of any written confidentiality, non-compete, non-solicitation or
business opportunity covenant contained in any agreement entered into by
the Participant and Vestar, Sheridan, the Company or any of their
Affiliates; (iii) substantially failed to perform the Participant's duties
to Sheridan, the Company or any Subsidiary, including by committing a
material breach of any written covenant contained in any agreement entered
into by the Participant and Vestar, Sheridan, the Company or any
Subsidiary (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been
remedied within a reasonable time specified by Sheridan (it being
understood that Sheridan can act on behalf of its Affiliates) that is not
less than thirty (30) days after delivery to the Participant by Sheridan
of written notice thereof; or (iv) breached the Participant's obligations
pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse
policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to
<PAGE> 73
6
time, or if there shall be no plan or if not defined therein, the
Participant's becoming physically or mentally incapacitated and consequent
inability for a period of six (6) months in any twelve (12) consecutive
month period to perform the Participant's duties to Sheridan, the Company
or any Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option
may be exercised by delivering to the Company at its principal office written
notice of intent to so exercise; provided that, the Option may be exercised with
respect to whole Shares only. Such notice shall specify the number of Shares for
which the Option is being exercised and shall be accompanied by payment in full
of the Exercise Price. The payment of the Exercise Price shall be made in cash
or, subject to the consent of the Committee, in Shares which have been owned by
the Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this
Agreement to the contrary, the Option may not be exercised prior to the
completion of any registration or qualification of the Option or the Shares that
is required to comply with appliicable state and federal securities or any
ruling or regulation of any governmental body or national securities exchange
that the Committee shall in its sole discretion determine in good faith to be
necessary or advisable.
(iii) Upon the Company's determination that the Option has
been validly exercised as to any of the Shares, the Company shall issue
certificates in the Participant's name for such Shares. However, the Company
shall not be liable to the Participant for damages
<PAGE> 74
7
relating to any delays in issuing the certificates to him, any loss of the
certificates, or any mistakes or errors in the issuance of the certificates or
in the certificates themselves.
(iv) In the event of the Participant's death, the Vested
Portion of the Option shall remain exercisable by a Permitted Transferee, the
Participant's executor or administrator, or the person or persons to whom the
Participant's rights under this Agreement shall pass by will or by the laws of
descent and distribution as the case may be, to the extent set forth in Section
3(a). Any heir or legatee of the Participant shall take rights herein granted
subject to the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant
shall become a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this
Agreement shall be construed as giving the Participant the right to be retained
in the employ of, or in any consulting relationship to, the Company or any
Affiliate. Further, the Company or an Affiliate may at any time dismiss the
Participant or discontinue any consulting relationship, free from any liability
or any claim under the Plan or this Agreement, except as otherwise expressly
provided herein.
5. Legend on Certificates. To the extent provided by the
Stockholders' Agreement, the certificates representing the Shares purchased by
exercise of the Option shall contain a legend stating that they are subject to
the Stockholders' Agreement and may be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause an additional
legend or legends to be put on any such certificates to make appropriate
reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant.
Notwithstanding the foregoing, the Participant may transfer all or
any portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer
<PAGE> 75
8
under an Option or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to
the exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering
into this Agreement the Participant agrees and acknowledges that the Participant
has received and read a copy of the Plan and the Stockholders' Agreement. The
Option is subject to the Plan and the Stockholders' Agreement. The terms and
provisions of the Plan and the Stockholders' Agreement as they may be amended
from time to time in accordance with their respective terms are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan or the
Stockholders' Agreement, the applicable terms and provisions of the Plan or the
Stockholders' Agreement, as applicable, will govern and prevail. In the event of
a conflict between any term or provision of the Plan and any term or provision
of the Stockholders' Agreement, the applicable terms and provisions of the
Stockholders' Agreement will govern and prevail.
<PAGE> 76
9
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
---------------------------
Agreed and acknowledged as of the date first above written:
- - -------------------------
<PAGE> 77
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS
ARE SUBJECT TO ACCELERATED VESTING
STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements
for the year, the Company shall calculate (and the Board of Directors shall
review and approve) EBITDA in good faith pro forma to give effect to all
acquisitions and divestitures completed during the year as if they had occurred
on January 1 of such year.
STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated
in Step 1) by 7.5.
STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value
(calculated in Step 2), deduct year-end balances for Total Debt and Other
Obligations, add year-end balance for Total Cash and add Total Option Proceeds.
For purposes of this calculation, Other Obligations includes any debt-like
instruments such as acquisition-related non-compete, consulting or stock price
guarantee payments as well as non-convertible preferred stock and
out-of-the-money convertible securities. Total Option Proceeds should include
options proceeds related to i) all time-based options (whether or not vested),
ii) all performance-based options that have vested in prior years and iii) all
performance-based options that vest in current year.
STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number
of shares outstanding at the beginning of the year, ii) shares issued in current
year for any reason, including those related to acquisitions, iii) all
time-based options (whether or not vested), iv) all performance-based options
that vest in prior years or in the current year, v) shares associated with
in-the-money convertible preferred stock and vi) shares associated with other
in-the-money common stock equivalents including, but not limited to, warrants
and any other options.
STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common
Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step
4). In Step 6, this number will be compared with the maximum and minimum targets
listed below to determine how many (if any) performance-based options vest in
current year.
STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR.
Multiply the number of options eligible for accelerated vesting in current year
pursuant to the Performance Option Plan by i) if the Value of Common Equity per
Share (Step 5) is greater than or equal to current year's Maximum Annual Price
Target, 100%; ii) if the Value of Common Equity per Share is less than or equal
to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common
Equity per Share is between current year's Minimum and Maximum Annual Price
Targets, the quotient calculated by dividing (A) excess of the Value of Common
Equity per Share over current year's Minimum Annual Price Target by (B) the
excess of current year's Maximum Annual Price Target over current year's Minimum
Annual Price Target.
<TABLE>
<CAPTION>
Minimum Annual Price Maximum Annual Price Target
Year Target
---------- -------------------- -----------------------------
<S> <C> <C>
1999 $10.18 $10.64
2000 12.21 13.83
2001 14.65 17.98
2002 17.58 23.37
2003 21.10 30.38
</TABLE>
<PAGE> 78
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST
PURSUANT TO PERFORMANCE MEASURES
<TABLE>
<CAPTION>
======================================================================
1999 2000 2001 2002 2003
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8
EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5
---------------------------------------------------------------------
Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3
Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6)
Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6
---------------------------------------------------------------------
Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3
Beginning # of Shares 7.317 10.105 10.225 10.346 10.467
Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000
Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000
Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000
Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000
Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000
---------------------------------------------------------------------
Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467
Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24
% appreciation 42.1% 32.9% 42.0% 34.3% 27.7%
ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38
% APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0%
ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10
% APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
</TABLE>
(a) Represents full year EBITDA adjusted to give effect to all current year
acquisitions and divestitures as if they occurred on January 1.
(b) For purposes of calculating Total Enterprise Value at the end of any year,
the EBITDA multiple shall be 7.5x.
(c) Other Obligations include any debt-like instruments such as
acquisition-related noncompete, consulting or stock price guarantee payments
as well as non-convertible preferred stock and out-of-the-money convertible
securities.
(d) Option proceeds assume exercise of all vested in-the-money options,
including those options available for current year vesting. In this example,
assumes all options have exercise price of $9.25.
(e) For purposes of calculating value of common equity per share on this
schedule, all time-based options are deemed vested and exercised.
(f) 483,333 performance options are available for grant. At Closing, 333,333 of
such options will be granted to existing members of management. The
remaining 150,000 options will be reserved for future grant. This example
assumes that all 483,333 are granted.
(g) Assumes a June 30, 1999 closing. If calculated value of common equity per
share exceeds the maximum annual share price target for that year, then 100%
of eligible options will vest (0.121 million in this example).
(h) Assumes a June 30, 1999 closing. If calculated value of common equity per
share is below the minimum annual share price target for that year, then 0%
of eligible options will vest (0.000 million in this example).
<PAGE> 79
Exhibit D
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
TIME OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - --------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 80
2
(a) Time Vesting.
Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest
and become exercisable with respect to twenty percent (20%) of the Shares
initially covered by the Option on each of the first, second, third, fourth and
fifth anniversaries (each such anniversary being a "Vesting Date") of the
purchase of shares of common stock of Sheridan pursuant to the Offer.
(b) Termination of Employment.
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability, the
Option shall, as of the date of such termination, become vested with respect to,
and the Vested Portion of the Option shall include, that portion of the Option
which would otherwise have vested on the next Vesting Date.
(c) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control the Option shall, to the extent not then vested
and not previously canceled, immediately become fully vested and exercisable.
3. Exercise of Option.
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in
<PAGE> 81
3
effect as of or after the Date of Grant (as the same may be amended in
accordance with the terms thereof) or if not defined therein or if there
shall be no such agreement, "Cause" shall exist if a Participant has (i)
committed an act of fraud, embezzlement, misappropriation or breach of
fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or
a felony involving the business, assets, customers or clients of Vestar,
Sheridan, the Company or any Subsidiary or has been convicted by a court
of competent jurisdiction or has plead guilty or nolo contendere to any
other felony; (ii) committed a material breach of any written
confidentiality, non-compete, non-solicitation or business opportunity
covenant contained in any agreement entered into by the Participant and
Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Participant's duties to Sheridan, the
Company or any Subsidiary, including by committing a material breach of
any written covenant contained in any agreement entered into by the
Participant and Vestar, Sheridan, the Company or any Subsidiary (other
than a confidentiality, non-compete, non-solicitation or business
opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty
(30) days after delivery to the Participant by Sheridan of written notice
thereof; or (iv) breached the Participant's obligations pursuant to
Sheridan's, the Company's or any Subsidiary's substance abuse policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to time, or
if there shall be no plan or if not defined therein, the Participant's
becoming physically or mentally incapacitated and consequent inability for
a period of six (6) months in any twelve (12) consecutive month period to
perform the Participant's duties to Sheridan, the Company or any
Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
<PAGE> 82
4
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option may be
exercised by delivering to the Company at its principal office written notice of
intent to so exercise; provided that, the Option may be exercised with respect
to whole Shares only. Such notice shall specify the number of Shares for which
the Option is being exercised and shall be accompanied by payment in full of the
Exercise Price. The payment of the Exercise Price shall be made in cash or,
subject to the consent of the Committee, in Shares which have been owned by the
Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this Agreement to
the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares that is required to
comply with applicable state and federal securities or any ruling or regulation
of any governmental body or national securities exchange that the Committee
shall in its sole discretion determine in good faith to be necessary or
advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss of the certificates, or any mistakes or errors in the issuance
of the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested Portion of the
Option shall remain exercisable by a Permitted Transferee, the Participant's
executor or administrator, or the person or persons to whom the Participant's
rights under this Agreement shall pass by will or by the laws of descent and
distribution as the case may be, to the extent set forth in Section 3(a). Any
heir or legatee of the Participant shall take rights herein granted subject to
the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant shall become
a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this Agreement
shall be construed as giving the Participant the right to be retained in the
employ of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an Affiliate may at any time dismiss the Participant or
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.
5. Legend on Certificates. To the extent provided by the Stockholders'
Agreement, the certificates representing the Shares purchased by exercise of the
Option shall
<PAGE> 83
5
contain a legend stating that they are subject to the Stockholders' Agreement
and may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which such Shares are listed, and any applicable Federal or state laws, and the
Committee may cause an additional legend or legends to be put on any such
certificates to make appropriate reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant
Notwithstanding the foregoing, the Participant may transfer all or any
portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate, and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer under an Option or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be addressed
to the Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering into
this Agreement the Participant agrees and acknowledges that the Participant has
received and read a copy of the Plan and the Stockholders' Agreement. The Option
is subject to the Plan and the
<PAGE> 84
6
Stockholders' Agreement. The terms and provisions of the Plan and the
Stockholders' Agreement as they may be amended from time to time in accordance
with their respective terms are hereby incorporated herein by reference. In the
event of a conflict between any term or provision contained herein and a term or
provision of the Plan or the Stockholders' Agreement, the applicable terms and
provisions of the Plan or the Stockholders' Agreement, as applicable, will
govern and prevail. In the event of a conflict between any term or provision of
the Plan and any term or provision of the Stockholders' Agreement, the
applicable terms and provisions of the Stockholders' Agreement will govern and
prevail.
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
------------------------------
Agreed and acknowledged as of the date
first above written:
- - ------------------------------
<PAGE> 1
SUBSCRIPTION AND TENDER AGREEMENT
SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999
(this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware
corporation (the "Company"), and the individual named on the signature page
hereto (the "Stockholder").
WHEREAS, concurrently herewith, the Company, Vestar/Calvary,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation
("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the
date hereof (the "Merger Agreement") pursuant to which, among other things,
Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $.01 per share, and Class A Common
Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common
Stock") and (y) to merge (the "Merger") into Sheridan;
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and make the Offer, the Company and Acquisition have required
the Stockholder and certain other Management Investors referred to below to
enter into this Agreement and the other Stockholder Documents referred to in the
Merger Agreement;
WHEREAS, the Stockholder has agreed, among other things, to
tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan
Common Stock owned by him as of the date hereof and all shares of Sheridan
Common Stock, if any, acquired by him after the date hereof and prior to the
expiration of the Offer (the "Tender Shares");
WHEREAS, on the terms and subject to the conditions hereof,
the Stockholder desires to subscribe for and acquire from the Company, and the
Company desires to issue and sell to the Stockholder, the number of shares of
common stock, par value $.01 per share, of the Company ("Common Stock") set
forth on Schedule I hereto, as hereinafter set forth;
WHEREAS, this Agreement is one of several agreements being
entered into by the Company on or after the date hereof with certain persons who
are or will be key employees of the Company or one of its subsidiaries
(collectively with the Stockholder, the "Management Investors");
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Subscription for and Purchase of Common Stock.
1.1. Purchase of Common Stock. Pursuant to the terms and
subject to the conditions set forth in this Agreement, the Stockholder hereby
subscribes for and agrees to purchase, and the Company hereby agrees to issue
and sell to the Stockholder, on the Closing
<PAGE> 2
2
Date (as defined in Section 1.3) the number of shares of Common Stock set forth
on Schedule I hereto at a price per share and for the aggregate amount in cash
(the "Purchase Price") set forth on Schedule I hereto.
1.2. Sales of Common Stock to Employees Only. Notwithstanding
anything in this Agreement to the contrary, the Company shall have no obligation
to issue, sell or deliver any shares of Common Stock to any person (i) who is
not a full-time employee of, or consultant to, the Company or any of its
subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in
which such issuance, sale or delivery to such person would constitute a
violation of the securities or "blue sky" laws of such jurisdiction.
1.3. The Closing. The closing (the "Closing") of the purchase
of Common Stock hereunder shall take place on the date (the "Closing Date") that
Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and
at such time as the Company shall direct on at least one business day's prior
notice to the Stockholder. The Closing shall occur at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such
other place as the parties may mutually agree. At the Closing, the Stockholder
(or the Stockholder's representative) shall deliver to the Company the Purchase
Price, payable by delivery of the amount set forth on Schedule I hereto, by
delivery of a certified check or by wire transfer in immediately available
funds.
1.4. Conditions to the Obligations of the Parties. (a) The
obligations of the Company under this Section 1 shall be subject to the
conditions that (i) the Stockholder shall have executed and delivered the
Stockholders Agreement dated as of the date hereof among the Company and its
stockholders party thereto in substantially the form attached hereto as Exhibit
A (the "Stockholders Agreement"), (ii) the representations and warranties of the
Stockholder in Section 2 of this Agreement shall be true and correct as of the
Closing Date in all material respects and (iii) the Stockholder shall not have
breached his obligations under Section 3 hereof.
(b) The obligations of the Stockholder under this Section 1
shall be subject to the conditions that (i) the Company shall have executed and
delivered the Stockholders Agreement and (ii) the representations and warranties
of the Company in Section 1.5 of this Agreement shall be true and correct as of
the Closing Date in all material respects.
1.5. Representations and Warranties of the Company. The
Company represents and warrants to the Stockholder as follows:
(a) the Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to execute and deliver this Agreement and the
Stockholders Agreement and to perform its obligations hereunder and thereunder.
The execution, delivery and performance by the Company of this Agreement and the
Stockholders Agreement has been duly authorized by all necessary corporate and
legal action by the Company, and no other corporate proceeding by the Company is
necessary for the execution, delivery and performance by the Company of this
Agreement or the Stockholders Agreement. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Company and, assuming
they are duly executed and delivered by the Stockholder,
<PAGE> 3
3
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
(b) the Common Stock to be issued to the Stockholder pursuant
to this Agreement, when issued and delivered in accordance with the terms
hereof, will be duly and validly issued and, upon receipt by the Company of the
Purchase Price therefor, will be fully paid and nonassessable with no personal
liability attached to the ownership thereof and will not be subject to any
preemptive rights under the Delaware General Corporation Law; and
(c) the execution, delivery and performance by the Company of
this Agreement and the Stockholders Agreement will not (i) conflict with the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or (iii) conflict with or violate any law, rule,
regulation, ordinance, writ, injunction, judgment or decree applicable to the
Company or any of its subsidiaries or by which any of their assets may be bound
or affected.
2. Representations, Warranties and Covenants of the Stockholder.
2.1. Residence and Competency; Power; Enforceability;
Noncontravention. The Stockholder is competent to and has sufficient capacity to
execute and deliver this Agreement and the Stockholders Agreement and to perform
his obligations hereunder and thereunder. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Stockholder.
Assuming the due execution and delivery of this Agreement and
the Stockholders Agreement by the Company, this Agreement and the Stockholders
Agreement constitute valid and binding obligations of the Stockholder,
enforceable against the Stockholder in accordance with their terms.
The execution, delivery and performance of this Agreement and
the Stockholders Agreement by the Stockholder will not (i) conflict with or
violate any law, rule, regulation, ordinance, writ, injunction, judgment or
decree applicable to the Stockholder or by which any of his assets may be bound
or affected or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Stockholder is a party or by which the Stockholder is bound.
2.2. Investment Intention; No Resales. The Stockholder hereby
represents and warrants that he is acquiring the Common Stock for investment
solely for his own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof. The Stockholder agrees and
acknowledges that he will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock,
or solicit any offers to purchase or otherwise acquire or pledge any shares of
Common Stock, unless such offer, transfer, sale, assignment, pledge,
hypothecation or other disposition complies with the provisions hereof and of
the Stockholders Agreement.
<PAGE> 4
4
2.3. Common Stock Unregistered. The Stockholder acknowledges
and represents that he has been advised by the Company that:
(a) the offer and sale of the Common Stock have not been and
will not be registered under the Securities Act;
(b) the Common Stock must be held indefinitely and the
Stockholder must continue to bear the economic risk of the investment in the
Common Stock unless the offer and sale of such Common Stock is subsequently
registered under the Securities Act and all applicable state securities laws or
an exemption from such registration is available;
(c) there is no established market for the Common Stock and it
is not anticipated that there will be any public market for the Common Stock in
the foreseeable future;
(d) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities of the Company,
and, except as set forth in the Stockholders Agreement, the Company has made no
covenant to make such Rule available;
(e) when and if shares of Common Stock may be disposed of
without registration under the Securities Act in reliance on Rule 144, such
disposition can be made only in limited amounts in accordance with the terms and
conditions of such Rule;
(f) if the Rule 144 exemption is not available, public offer
or sale of Common Stock without registration will require compliance with some
other exemption under the Securities Act;
(g) if any shares of Common Stock are at any time disposed of
in accordance with Rule 144, the Stockholder will deliver to the Company at or
prior to the time of such disposition an executed Form 144 (if required by Rule
144) and such other documentation as the Company may reasonably require in
connection with such sale;
(h) a restrictive legend in the form set forth in the
Stockholders Agreement shall be placed on the certificates representing Common
Stock; and
(i) a notation shall be made in the appropriate records of the
Company indicating that the Common Stock is subject to restrictions on transfer
and, if the Company should at some time in the future engage the services of a
securities transfer agent, appropriate stop-transfer instructions will be issued
to such transfer agent with respect to the Common Stock.
2.4. Additional Investment Representations. The Stockholder
represents and warrants that:
(a) the Stockholder's financial situation is such that he can
afford to bear the economic risk of holding the Common Stock for an indefinite
period of time, has adequate means for providing for his current needs and
personal contingencies, and can afford to suffer a complete loss of his
investment in the Common Stock;
<PAGE> 5
5
(b) the Stockholder's knowledge and experience in financial
and business matters are such that he is capable of evaluating the merits and
risks of the investment in the Common Stock, as contemplated by this Agreement;
(c) the Stockholder understands that the Common Stock is a
speculative investment which involves a high degree of risk of loss of his
investment therein, there are substantial restrictions on the transferability of
the Common Stock and, on the Closing Date and for an indefinite period following
the Closing, there will be no public market for the Common Stock and,
accordingly, it may not be possible for the Stockholder to liquidate his
investment in case of emergency, if at all;
(d) the terms of the Stockholders Agreement provide that in
the event that the Stockholder ceases to be an employee of Sheridan, the
Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their
designated affiliates have the right to repurchase the Common Stock at a price
which may, in certain circumstances, be less than the fair market value of such
stock;
(e) the Stockholder understands and has taken cognizance of
all the risk factors related to the purchase of Common Stock and, other than as
set forth in this Agreement, no representations or warranties have been made to
the Stockholder or his representatives concerning the Common Stock or the
Company, its subsidiaries or their prospects or other matters;
(f) in making his decision to purchase the Common Stock hereby
subscribed for, the Stockholder has relied upon independent investigations made
by him and, to the extent believed by the Stockholder to be appropriate, his
representatives, including his own professional, financial, tax and other
advisors;
(g) the Stockholder has been given the opportunity to examine
all documents and to ask questions of, and to receive answers from, the Company
and its representatives concerning the Company and its subsidiaries and the
terms and conditions of the purchase of the Common Stock and to obtain any
additional information, in each case as the Stockholder or his representatives
deems necessary;
(h) all information which the Stockholder has provided to the
Company and its representatives concerning the Stockholder and his financial
position is complete and correct as of the date of this Agreement; and
(i) the Stockholder is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act.
3. Agreements Relating to Tender Shares.
3.1. Agreement to Tender. The Stockholder hereby agrees to
validly tender pursuant to the Offer and not withdraw from the Offer all Tender
Shares; provided that the Merger Agreement has not been terminated.
3.2. Voting of Tender Shares. The Stockholder hereby agrees,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, to vote all Tender
<PAGE> 6
6
Shares (a) in favor of the adoption of the Merger Agreement and the approval of
the transactions contemplated thereby and (b) against any action or agreement
that would result in a breach of any representation, warranty, covenant or
agreement of the Company contained in the Merger Agreement or would impede,
interfere with, delay or prevent the consummation of the Merger or the purchase
of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall
not, so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, purport to vote (or execute a written consent with respect
to) Tender Shares other than in accordance with this Agreement or grant any
proxy or power of attorney with respect to Tender Shares, deposit any Tender
Shares into a voting trust, or enter into any agreement, arrangement or
understanding with any person (other than this Agreement), directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of Tender Shares, or agree to do any of the foregoing.
3.3. Disposition of Tender Shares. The Stockholder shall not,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise
encumber, any Tender Shares after the date hereof (except to tender Tender
Shares to Acquisition pursuant to the Offer), or agree to do any of the
foregoing.
3.4. Stop Transfer Order. The Stockholder hereby agrees to
cause Sheridan's transfer agent to be notified that there is a stop transfer
order (except to tender Tender Shares to Acquisition pursuant to the Offer) with
respect to all Tender Shares so long as the Stockholder is required to tender
Tender Shares pursuant to Section 3.1 hereof.
4. Options.
4.1. Adoption of Option Plan. Immediately following the
Effective Time (as defined in the Merger Agreement), the Company shall duly
adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially
the form attached hereto as Exhibit B.
4.2. Grant of Performance Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Performance Option Agreement in substantially the form attached hereto as
Exhibit C pursuant to which the Stockholder will be granted performance options
to purchase the number of shares of Common Stock set forth opposite his name on
Schedule II hereto at an exercise price equal to the per share price paid by the
Stockholder for Common Stock pursuant hereto. Following such due execution and
delivery thereof, the Performance Option Agreement shall constitute a valid and
binding obligation of each of the Company and the Stockholder, enforceable
against each of the Company and the Stockholder in accordance with its terms.
4.3. Grant of Time Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Time Option Agreement in substantially the form attached hereto as Exhibit D
pursuant to which the Stockholder will be granted time options to purchase the
number of shares of Common Stock set forth opposite his name on Schedule II
hereto at an exercise price equal to the per share price paid by the Stockholder
for Common Stock pursuant hereto. Following such due execution and delivery
thereof, the Time Option Agreement shall constitute a valid and binding
obligation of each of the Company and the Stockholder, enforceable against each
of the Company and the Stockholder in accordance with its terms.
<PAGE> 7
7
5. Miscellaneous.
5.1. Recapitalizations, Exchanges, Etc., Affecting Common
Stock. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to Common Stock, to any and all shares of capital
stock of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution for Common Stock, by reason of
any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Upon the occurrence of any of such events, amounts hereunder shall be
appropriately adjusted, in good faith, by the Board of Directors of the Company.
5.2. Stockholder's Employment by the Company. Nothing
contained in this Agreement shall be deemed to obligate the Company or any
subsidiary of the Company to employ the Stockholder in any capacity whatsoever
or to prohibit or restrict the Company (or any such subsidiary) from terminating
the employment, if any, of the Stockholder at any time or for any reason
whatsoever, with or without Cause (as defined in the Stockholders Agreement).
5.3. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. No assignment of any of
the rights or obligations of the Stockholder shall be permitted except as
expressly contemplated hereby; any purported assignment in violation of this
provision shall be null and void ab initio.
5.4. Amendment; Waiver. This Agreement may be amended only by
a written instrument signed by the parties hereto. No waiver by either party
hereto of any of the provisions hereof shall be effective unless set forth in a
writing executed by the party so waiving.
5.5. Governing Law. This Agreement shall be governed by and
construed in all respects under the laws of the State of New York. Any action to
enforce which arises out of or in any way relates to any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located
within the State of New York as provided by law; and the parties consent to the
jurisdiction of such court or courts located within the State of New York and to
service of process by registered mail, return receipt requested, or by any other
manner provided by New York law.
5.6. Notices. Any notices or communications permitted or
required hereunder shall be deemed sufficiently given if hand-delivered, or sent
by (x) registered or certified mail return receipt requested, (y) telecopy or
other electronic transmission service (to the extent receipt is confirmed) or
(z) by overnight courier, in each case to the parties at their respective
addresses and telecopy numbers set forth below, or to such other address of
which any party may notify the other party in writing.
<PAGE> 8
8
(a) If to the Company, to it at the following address:
Vestar/Calvary Holdings, Inc.
c/o Vestar Capital Partners
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Telecopy: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Telecopy: (212) 455-2502
(b) If to the Stockholder, to him at his address or telecopy
number as shown on the stock register of the Company.
5.7. Integration. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
5.8. Counterparts. This Agreement may be executed in two or
more counterparts, and by different parties on separate counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
5.9. Injunctive Relief. The Stockholder, on behalf of himself
and his permitted transferees, and the Company, on its own behalf and on behalf
of its successors and assigns, each acknowledges and agrees that a violation of
any of the terms of this Agreement will cause the other irreparable injury for
which adequate remedy at law is not available. Accordingly, it is agreed that
the Company or the Stockholder, as the case may be, shall be entitled to an
injunction, restraining order or other equitable relief to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which it or he may be
entitled at law or equity.
5.10. Rights to Negotiate. Nothing in this Agreement shall be
deemed to restrict or prohibit the Company from purchasing shares of Common
Stock from the Stockholder at any time upon such terms and conditions and at
such price as may be mutually agreed upon between the Company and the
Stockholder, whether or not at the time of such purchase circumstances exist
<PAGE> 9
9
which specifically grant the Company the right to purchase, or the Stockholder
the right to sell, shares of Common Stock pursuant to the terms of this
Agreement or the Stockholders Agreement.
5.11. Rights Cumulative; Waiver. The rights and remedies of
the Stockholder and the Company under this Agreement shall be cumulative and not
exclusive of any rights or remedies which either would otherwise have hereunder
or at law or in equity or by statute, and no failure or delay by either party in
exercising any right or remedy shall impair any such right or remedy or operate
as a waiver of such right or remedy, nor shall any single or partial exercise of
any power or right preclude such party's other or further exercise or the
exercise of any other power or right. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ James L. Elrod, Jr.
----------------------------------------
Name: James L. Elrod, Jr.
Title: President
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
STOCKHOLDER:
/s/ Jay A. Martus
-------------------------------------
Jay A. Martus
<PAGE> 12
JAY A. MARTUS
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares Purchase Price Aggregate Purchase
of Common Stock Per Share Price Payable
- - --------------- --------- -------------
<S> <C> <C>
3,244** Per share price paid by Acquisition $30,007
for Sheridan Common Stock
pursuant to the Offer
</TABLE>
** Assuming a purchase price per share of $9.25.
<PAGE> 13
JAY A. MARTUS
SCHEDULE II
<TABLE>
<CAPTION>
Number of Shares Subject Number of Shares Subject
to Time Options to Performance Options
- - --------------- ----------------------
<S> <C>
66,666 33,334
</TABLE>
<PAGE> 14
Exhibit (c) (2)
EXECUTION COPY
================================================================================
STOCKHOLDERS AGREEMENT
dated as of March 24, 1999
among
VESTAR/CALVARY HOLDINGS, INC.,
SHERIDAN HEALTHCARE, INC.,
VESTAR/CALVARY INVESTORS, LLC,
MITCHELL EISENBERG,
LEWIS D. GOLD,
MICHAEL F. SCHUNDLER,
JAY A. MARTUS
and
THE OTHER MANAGEMENT INVESTORS
================================================================================
<PAGE> 15
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.......................................................1
1.1 Defined Terms.....................................................1
1.2 Other Definitional Provisions; Interpretation....................10
SECTION 2. VOTING AGREEMENTS................................................11
2.1 Election of Directors............................................11
2.2 Other Voting Matters.............................................12
SECTION 3. TRANSFERS AND ISSUANCES..........................................12
3.1 Transfers to be Made Only as Permitted or
Required by this Agreement ......................................12
3.2 Permitted Transfers..............................................13
3.3 Effect of Void Transfers.........................................13
3.4 Legend on Securities.............................................13
3.5 Tag-Along Rights.................................................14
3.6 Public Offerings, etc. ..........................................15
3.7 Drag-Along Rights................................................16
3.8 Rights of First Refusal..........................................16
3.9 Participation Right..............................................18
3.10 Partial Transfers Following a Qualified Public Offering..........19
3.11 Partial Transfers to Cover Option-Related Tax Payments...........19
3.12 Transfers to Other Management Investors. .......................20
3.13 Call Right.......................................................20
3.14 Put Right........................................................22
SECTION 4. REGISTRATION RIGHTS..............................................24
4.1 Demand Registration..............................................24
4.2 Incidental Registration..........................................25
4.3 Registration Procedures..........................................27
4.4 Underwritten Offerings...........................................30
4.5 Preparation; Reasonable Investigation............................31
4.6 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants.....................................31
4.7 Expenses.........................................................32
4.8 Indemnification..................................................33
4.9 Participation in Underwritten Registrations......................34
4.10 Rule 144.........................................................35
4.11 Holdback Agreements..............................................35
4.12 Mezzanine Securities.............................................35
SECTION 5. MISCELLANEOUS....................................................36
5.1 Additional Securities Subject to Agreement.......................36
-i-
<PAGE> 16
5.2 Termination......................................................36
5.3 Injunctive Relief................................................36
5.4 Other Stockholders' Agreements...................................36
5.5 Amendments.......................................................36
5.6 Successors, Assigns and Transferees..............................36
5.7 Notices..........................................................36
5.8 Integration......................................................37
5.9 Severability.....................................................37
5.10 Counterparts.....................................................37
5.11 Governing Law....................................................38
5.12 Jurisdiction.....................................................38
5.13 Management Investors.............................................38
5.14 83(b) Election...................................................38
5.15 Management Investor Representative...............................38
5.16 Covenant Not to Compete..........................................39
5.17 Business Opportunities...........................................39
5.18 Confidentiality..................................................40
5.19 Effectiveness....................................................40
SCHEDULE 1 - Initial Other Management Investors
-ii-
<PAGE> 17
STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among
Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan
Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors,
LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis
D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior
Management Investors") and the other persons listed on Schedule 1 hereto
(collectively, together with the persons identified in the supplementary
agreements referred to in Section 5.13 hereof, the "Other Management
Investors"). The Senior Management Investors and the Other Management Investors
are collectively referred to herein as the "Management Investors".
W I T N E S S E T H :
WHEREAS, the Company, the Senior Management Investors and the Other
Management Investors listed on Schedule 1 hereto have entered into subscription
and tender agreements dated as of the date hereof (the "Subscription and Tender
Agreements");
WHEREAS, pursuant to the Subscription and Tender Agreements and on
the terms and subject to the conditions set forth therein, the Senior Management
Investors and the Other Management Investors listed on Schedule 1 hereto have
agreed to purchase shares of common stock of the Company;
WHEREAS, the Company, Sheridan, Vestar and the Management Investors
desire to make certain arrangements among themselves with respect to matters set
forth herein; and
WHEREAS, it is a condition to the consummation of the closings under
the Subscription and Tender Agreements that this Agreement (as defined below)
shall have been duly authorized, executed and delivered by each of the parties
hereto and be in full force and effect;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, terms defined in the
headings and the recitals shall have their respective assigned meanings, and the
following capitalized terms shall have the meanings ascribed to them below:
"Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company.
"Affiliate" means, with respect to any Person, (i) any Person that
directly or indirectly controls, is controlled by or is under common control
with, such Person, or (ii) any director, officer, partner or employee of such
Person or any Person specified in clause (i) above, or
(iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or
sibling of any Person specified in clause (i) or (ii) above.
<PAGE> 18
2
"Aggregate Investment" shall have the meaning ascribed to such term
in the definition of "Lapse Date."
"Agreement" means this Stockholders Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Applicable Percentage" shall mean (i) for the period from the
Closing Date through the day immediately preceding the first anniversary of the
Closing Date, 0%, (ii) for the period from the first anniversary of the Closing
Date through the date immediately preceding the second anniversary of the
Closing Date, 25%, (iii) for the period from the second anniversary of the
Closing Date through the day immediately preceding the third anniversary of the
Closing Date, 50%, (iv) for the period from the third anniversary of the Closing
Date through the day immediately preceding the fourth anniversary of the Closing
Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%.
"Business Day" means a day other than a Saturday, Sunday, holiday or
other day on which commercial banks in New York City or Miami, Florida are
authorized or required by law to close.
"Call Notice" shall have the meaning ascribed to such term in
Section 3.13(a).
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Management Investor and the Company or any of
its Subsidiaries which is in effect as of or after the Closing Date (as the same
may be amended in accordance with the terms thereof) or, if not defined therein
or if there shall be no such agreement, "Cause" shall exist if a Management
Investor has (i) committed an act of fraud, embezzlement, misappropriation or
breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary
of the Company or Sheridan or a felony involving the business, assets, customers
or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan or has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material breach
of any written confidentiality, non-compete, non-solicitation or business
opportunity covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Management Investor's duties to Sheridan,
the Company or any Subsidiary, including by committing a material breach of any
written covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty (30)
days after delivery to the Management Investor by Sheridan of written notice
thereof; or (iv) breached the Management Investor's obligations pursuant to
Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's
substance abuse policy.
"Closing Date" shall have the meaning ascribed to such term in the
Subscription and Tender Agreements.
<PAGE> 19
3
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute. Any reference herein to a particular
provision of the Code shall mean, where appropriate, the corresponding provision
in any successor statute.
"Columbia" means the hospitals and ambulatory surgical facilities
owned by Columbia/HCA Healthcare, Inc.
"Common Stock" means the common stock of the Company or common
equity securities, or securities exchangeable or exercisable for or convertible
into common equity securities, of any Person into or for which Common Stock is
converted, exchanged or received in an Exit Transaction.
"Common Stock Equivalents" means any stock, warrants, rights, calls,
options or other securities exchangeable or exercisable for or convertible into
Common Stock.
"Company" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include any Person who, in connection
with an Exit Transaction, becomes the issuer of Common Stock.
"Competitive Enterprise" means any Person the activities, products
or services of which (A) are competitive with activities, products or services
of the Company or any of its Controlled Entities (as defined in the Merger
Agreement) in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Management Investor's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services, including without
limitation, the provision of anesthesia services, pain management services,
emergency room services, primary medical care services, neonatology,
perinatology and radiology services; (2) the provision of Payor Services; (3)
the provision of administrative services for medical services and Payor
Services, including without limitation, quality assurance services, utilization
management services, billing services, recruitment services and medical
management information services; or (4) the provision of services or products of
any nature to Columbia.
"Confidential Information" shall have the meaning ascribed to such
term in Section 5.18(a).
"Cost" means the purchase price per share of Common Stock paid by
the applicable Management Investor determined by dividing (x) the total purchase
price paid by such Management Investor on the date of purchase of such share by
(y) the number of shares of Common Stock purchased by such Management Investor
on such date, as adjusted by the Board of Directors of the Company in good faith
and on a consistent basis to reflect Exit Transactions and stock splits, stock
dividends, recapitalizations and other similar transactions.
"Cost Securities" shall have the meaning ascribed to such term in
Section 3.13(f).
"Custody Agreement and Power of Attorney" shall have the meaning
ascribed to such term in Section 4.2(c)
<PAGE> 20
4
"DGCL" shall have the meaning ascribed to such term in Section 5.11.
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Management Investor and the Company or
any of its Subsidiaries which is in effect as of or after the Closing Date (as
the same may be amended in accordance with the terms thereof) or, if not defined
therein or if there shall be no such agreement, as defined in Sheridan's
long-term disability plan as in effect from time to time or if, there shall be
no plan or if not defined therein, the Management Investor's becoming physically
or mentally incapacitated and consequent inability for a period of six (6)
months in any twelve (12) consecutive month period to perform the Management
Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the
Company.
"Effective Time" shall have the meaning ascribed to such term in the
Merger Agreement.
"Exit Transaction" shall have the meaning ascribed to such term in
the definition of "Lapse Date."
"Equity Interests" shall have the meaning ascribed to such term in
Section 3.9(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
"Fair Market Value" shall mean, as of any date of determination,
with respect to shares of Common Stock, (x) prior to a Qualified Public
Offering, the fair market value of the shares, disregarding any discount for
minority interest, restrictions on transfer of the shares or lack of
marketability of the shares, as determined in good faith and on a consistent
basis by the Board of Directors of the Company, giving due consideration to,
among other things, the earnings and other financial and operating information
of the Company, Sheridan and its Subsidiaries in recent periods, the future
prospects of the Company, Sheridan and its Subsidiaries, the general condition
of the securities markets and the fair market value of securities of companies
of a similar size and engaged in businesses similar to the business of the
Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public
Offering, the price per share of Common Stock equal to the average of the last
sales price of a share of Common Stock on each of the last five trading days
prior to the date of determination (the "FMV Calculation Period") on each
exchange on which the Common Stock may at the time be listed or, if there shall
have been no sales on any of such exchanges during the FMV Calculation Period,
the average of the closing bid and asked prices on each such exchange on each
day during the FMV Calculation Period or, if there are no such bid and asked
prices during the FMV Calculation Period, on the next preceding five dates on
which such bid and asked prices occurred or, if Common Stock shall not be so
listed, the average of the closing sales prices as reported by NASDAQ during the
FMV Calculation Period in the over-the-counter market.
"Family Group" shall have the meaning ascribed to such term in
Section 3.2(a).
<PAGE> 21
5
"Financing Default" shall mean an event which constitutes (or which
with notice or lapse of time or both would constitute) an event of default
(which event of default has not been cured or waived) under any of the following
as originally entered into or as they may be amended from time to time: (i) any
agreement or instrument under which indebtedness of any of the Company and its
Subsidiaries is outstanding as of the time of the aforementioned event, and any
extensions, renewals, refinancings or refundings thereof in whole or in part;
(ii) any provision of the Company's or any of its Subsidiaries' certificates of
incorporation or other organizational documents as in effect on the date hereof;
(iii) any amendment of, supplement to or other modification of any of the
instruments referred to in clauses (i) or (ii) above; and (iv) any of the
securities issued pursuant to or whose terms are governed by the terms of any of
the agreements set forth in clauses (i) and (ii) above, and any extensions,
renewals, refinancings or refundings thereof in whole or in part.
"FMV Calculation Period" shall have the meaning ascribed to such
term in the defined term "Fair Market Value".
"Good Reason" shall mean, if the Management Investor has entered
into an employment agreement with Sheridan, the Company or any of its
Subsidiaries which is in effect as of or after the Closing Date (as the same may
be amended in accordance with the terms hereof) the occurrence of such events
which, under the terms of such employment agreement, would expressly enable the
Management Investor to resign from employment and be treated under such
employment agreement as though the Management Investor's employment had been
terminated by the Company without "cause" or, if the employment agreement does
not include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of
Sheridan or the Company has failed to pay the Management Investor his salary;
(ii) the office where the Management Investor performs his duties is moved more
than 30 miles from where the Management Investor performed the Management
Investor's duties on the Closing Date; (iii) a substantial reduction of the
Management Investor's base salary (other than an across the board reduction
similarly affecting other comparable employees of Sheridan, the Company or its
Subsidiaries) or a substantial diminution of the Management Investor's duties,
which, in each case, has not been remedied within a reasonable time specified by
the Management Investor that is not less than thirty (30) days after delivery to
Sheridan of written notice describing the event constituting Good Reason.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Health Care Provider" means any physician, nurse, technician or
allied health care provider providing medical services on behalf of Sheridan or
any of its Affiliates on a full or part-time basis as an independent contractor
or consultant.
"Initial Call Period" shall have the meaning ascribed to such term
in Section 3.13(f).
<PAGE> 22
6
"Initial Public Offering" means the first Public Offering occurring
after the date hereof.
"Issuance" shall have the meaning ascribed to such term in Section
3.9(a).
"Junior Subordinated Note" shall have the meaning ascribed to such
term in Section 3.13(g).
"Lapse Date" means the earlier of (x) the fifth anniversary of the
Closing Date and (y) the date of the sale, exchange or other disposition by
Vestar and its Affiliates, in one or a series of transactions (including,
without limitation, by way of merger, reorganization, recapitalization,
consolidation, sale of capital stock or assets of Sheridan or any other
Subsidiary of the Company, or similar transaction that results in the
disposition, directly or indirectly, of the equity interests of Vestar and its
Affiliates (other than the Management Investors) in the Company) (collectively,
an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in
the Company immediately following the Closing Date plus (2) any additional
capital contributions to, or investments in, the Company made by any of Vestar
and its Affiliates after the Closing Date (clauses (1) and (2), collectively,
the "Aggregate Investment"); provided that, in the case of clause (y), either
(A) the consideration received by Vestar and its Affiliates in the Exit
Transaction for 70% or more of the Aggregate Investment is cash or securities
that are distributed in kind to the limited partners of Vestar Capital Partners
III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction
results in (i) designees of Vestar and its Affiliates not constituting a
majority of the Board of Directors (or analogous governing body) of the Company
and (ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding securities of the Company entitled to vote generally in the election
of directors (or members of an analogous governing body) of the Company.
"Majority Selling Stockholders" shall have the meaning ascribed to
such term in Section 4.7.
"Management Investors" shall have the meaning ascribed to such term
in the preamble to this Agreement.
"Management Investor Offeree" shall have the meaning ascribed to
such term in Section 3.8(a).
"Manager Investor Representative" shall have the meaning ascribed to
such term in Section 5.15.
"Management Investor's Transfer Group" shall have the meaning
ascribed to such term in Section 3.8(a).
"Measurement Date" shall have the meaning ascribed to such term in
Section 3.10.
<PAGE> 23
7
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs, PHOs,
MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals,
clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid
intermediaries.
"Merger" shall have the meaning ascribed to such term in the Merger
Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated as
of the date hereof among Sheridan, the Company and Acquisition, as the same may
be amended, supplemented or otherwise modified from time to time, pursuant to
which, among other things, Acquisition will merge into Sheridan, with Sheridan
constituting the surviving corporation.
"Mezzanine Securities" means securities of the Company, excluding
Common Stock, but including preferred stock and warrants to purchase Common
Stock, issued to any of Vestar and its Affiliates prior to the Effective Time,
and any securities into or for which such securities are exchangeable.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"No Call Notice" shall have the meaning ascribed to such term in
Section 3.13(e).
"No ROFR Notice" shall have the meaning ascribed to such term in
Section 3.8(g).
"Non-Competition Period" means with respect to each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a non-competition provision, the period commencing on the last day of
the Term of Employment and ending on the first anniversary of the last day of
the Term of Employment.
"Offeror" shall have the meaning ascribed to such term in Section
3.8(a).
"Option" means any option to acquire Common Stock or other capital
stock of the Company, including without limitation, all options granted under
the Company's 1999 Stock Option Plan.
"Option Shares" means all Common Stock or other capital stock of the
Company received by a Management Investor upon the exercise or other settlement
of an Option.
"Other Capital Stock" shall have the meaning ascribed to such term
in Section 3.9(a)(i).
"Other Capital Stock Equivalents" shall have the meaning ascribed to
such term in Section 3.9(a)(ii).
<PAGE> 24
8
"Other Management Investors" shall have the meaning ascribed to such
term in the preamble to this Agreement.
"Payor Services" means payor services in the area of managed care,
third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs,
capitation pools and other similar arrangements.
"Permitted Payment" shall have the meaning ascribed to such term in
Section 3.13(g).
"Permitted Transferee" has the meaning ascribed to such term in
Section 3.2(a).
"Person" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust, unincorporated
association, joint venture, Governmental Authority or other entity of any nature
whatsoever.
"Public Offering" means the sale of Securities to the public
pursuant to an effective registration statement filed under the Securities Act.
"Purchased Shares" shall mean, with respect to each Management
Investor, those shares of Common Stock that are purchased by the Management
Investor from the Company (as adjusted in good faith and on a consistent basis
by the Board of Directors of the Company to reflect Exit Transactions and stock
splits, stock dividends, recapitalizations and other similar transactions),
other than pursuant to the exercise of an Option.
"Put Notice" shall have the meaning ascribed to such term in Section
3.14(a).
"Qualified Public Offering" shall mean the sale of Common Stock to
the public after the Effective Time pursuant to an effective registration
statement filed under the Securities Act, which, together with any earlier
registered public sales of Common Stock under the Securities Act occurring after
the Effective Time, results in aggregate gross proceeds to the Company or its
stockholders, or both, of at least $50 million.
"Regulations" means the regulations promulgated under the Code.
"Request" shall have the meaning ascribed to such term in Section
4.1(a).
"Requesting Stockholder" shall have the meaning ascribed to such
term in Section 4.1(a).
"Right" shall have the meaning ascribed to such term in Section
3.9(a).
"Securities" means shares of Common Stock or Common Stock
Equivalents or other securities of the Company, other than (i) debt securities
that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each
case whether owned on the date hereof or hereafter acquired.
<PAGE> 25
9
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"SEC" means the Securities and Exchange Commission.
"Selling Stockholder" shall have the meaning ascribed to such term
in Section 4.3(c).
"Senior Management Investors" shall have the meaning ascribed to
such term in the preamble to this Agreement.
"Sheridan" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include its successors by means of a
merger, consolidation, reorganization, recapitalization or similar transaction.
"Stockholders" means Vestar, the Management Investors, and their
respective Permitted Transferees.
"Subscription and Tender Agreements" shall have the meaning ascribed
to such term in the recitals to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or fifty percent (50%) or more of the
equity interest therein, is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Tag Notice" shall have the meaning ascribed to such term in Section
3.5(b).
"Tagging Stockholder" shall have the meaning ascribed to such term
in Section 3.5(a).
"Term of Employment" means with respect to each Management Investor
who is not a Senior Management Investor and who is not a party to a written
employment agreement with the Company or any of its Subsidiaries that contains a
non-competition provision, any time during the period in which such Management
Investor is employed by the Company or any of its Subsidiaries.
"Third Party" means any Person other than the Company, the
Stockholders and their Affiliates.
"Transfer" means any transfer, sale, assignment, distribution,
exchange, mortgage, pledge, hypothecation or other disposition of any Securities
or any interest therein, including transfers by operation of law in connection
with a merger transaction or otherwise.
<PAGE> 26
10
"Transfer Notice" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Offer" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Securities" shall have the meaning ascribed to such term
in Section 3.8(a).
"Vestar" shall have the meaning ascribed to such term in the
preamble to this Agreement.
"Vested Purchased Shares" shall mean at any time, the number of
Purchased Shares initially acquired by a Management Investor (as adjusted in
good faith and on a consistent basis by the Board of Directors of the Company to
reflect Exit Transactions and stock splits, stock dividends, recapitalizations
and other similar corporate transactions) times the Applicable Percentage.
1.2 Other Definitional Provisions; Interpretation. (a) The words
"hereof", "herein", and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Subsection, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(b) The headings in this Agreement are included for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of this Agreement.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) For purposes of comparing the beneficial ownership of any Person
on the date of execution and delivery of this Agreement to the level of such
ownership at any later time, the level of ownership on such later date shall be
adjusted to eliminate the effect of any subdivision of the Common Stock, any
combination of the Common Stock, any issuance of Common Stock or Common Stock
Equivalents by reason of any reclassification (including, without limitation,
any reclassification in connection with a merger or consolidation), or any
dividend payable in Common Stock or Common Stock Equivalents.
SECTION 2. VOTING AGREEMENTS
2.1 Election of Directors. (a) Each Stockholder hereby agrees that,
so long as this Agreement shall remain in effect, such Stockholder will vote all
of the voting Securities owned or held of record by such Stockholder so as to
elect and, during such period, to continue in office a Board of Directors of the
Company and each Subsidiary of the Company (other than Subsidiaries of
Sheridan), each consisting solely of the following:
(i) 3 designees of Vestar (or its designated Permitted Transferees);
<PAGE> 27
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(ii) 2 designees of the Management Investors (who shall be Mitchell
Eisenberg and Lewis Gold so long as each of them is an executive officer of
Sheridan); and
(iii) 2 persons to be designated by Vestar (or its designated
Permitted Transferees) in its sole discretion after consultation with the
Management Investor Representative.
(b) If at any time while this Agreement shall remain in effect
Vestar (or its designated Permitted Transferees) shall notify the other
Stockholders of its desire to remove, with or without cause, any director of the
Company or any of its Subsidiaries previously designated by it in accordance
with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities
owned or held of record by it so as to remove such director.
(c) If at any time while this Agreement shall remain in effect any
director previously designated by Vestar (or its Permitted Transferees) or the
Management Investors ceases to serve on the Board of Directors of the Company or
any Subsidiary of the Company (whether by reason of death, resignation, removal
or otherwise), the Stockholder or Stockholders who designated such director
shall be entitled to designate a successor director to fill the vacancy created
thereby on the terms and subject to the conditions of paragraph (a). Each
Stockholder agrees to vote all of the voting Securities owned or held of record
by such Stockholder so as to elect any such director.
(d) The parties hereto hereby agree that any individual designated
as a director of the Company or any Subsidiary of the Company may be removed for
cause (as reasonably determined by the Board of Directors of the Company, other
than such person) with or without the consent of the Stockholder which
designated such individual. No such removal of an individual designated pursuant
to this Section 2.1 shall affect the rights of any of the Stockholders to
designate a different individual pursuant to this Section 2.1.
(e) No fees shall be paid by the Company or any of its Subsidiaries
to any member of their respective Boards of Directors who are employees of
Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a
member of such Board of Directors; provided that the foregoing shall not limit
reimbursement of expenses in accordance with the expense reimbursement policy of
Sheridan and its Subsidiaries.
(f) The Stockholders hereby agree that Vestar (or its designated
Permitted Transferees) shall have sole discretion to determine the composition
of the Company's and its Subsidiaries' Board of Directors' committees (e.g.,
audit, compensation, etc.) through the rights granted to Vestar (or its
designated Permitted Transferees) pursuant to Section 2.1(a)(i).
2.2 Other Voting Matters. (a) Each Management Investor and their
Permitted Transferees hereby agrees that, until the occurrence of the Lapse
Date, such Stockholder will vote all of the Securities owned or held of record
by such Stockholder, either in person or by proxy, whether at a meeting of
stockholders or by executing a written consent, (i) consistent with the vote of
Vestar with respect to the shares of Common Stock beneficially owned by Vestar
and (ii) to ratify, approve and adopt any and all actions adopted or approved by
the Board of Directors of the Company.
<PAGE> 28
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(b) In order to effectuate the provisions of Sections 2.1 and 2.2
hereof, (i) each of the Management Investors and their Permitted Transferees
hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be
Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan,
a proxy to vote at any annual or special meeting of Stockholders, or to take
action by written consent in lieu of such meeting with respect to, or to
otherwise take action in respect of, all of the Securities owned or held of
record by the Management Investors and their Permitted Transferees in connection
with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the
provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is
irrevocable and is coupled with an interest. To effectuate the provisions of
this Section 2, the Secretary of each of the Company and each Subsidiary of the
Company, or if there be no Secretary such other officer of the Company or such
Subsidiary as the Board of Directors of the Company or such Subsidiary may
appoint to fulfill the duties of the Secretary, shall not record any vote or
consent or other action contrary to the terms of this Section 2.
SECTION 3. TRANSFERS AND ISSUANCES
3.1 Transfers to be Made Only as Permitted or Required by this
Agreement.
(a) Each Stockholder hereby agrees that such Stockholder will not,
directly or indirectly, Transfer any Securities unless such Transfer complies
with the provisions hereof and (i) such Transfer is pursuant to an effective
registration statement under the Securities Act and has been registered under
all applicable state securities or "blue sky" laws or (ii) such Stockholder
shall have furnished the Company with a written opinion of counsel reasonably
satisfactory to the Company in form and substance reasonably satisfactory to the
Company to the effect that no such registration is required because of the
availability of an exemption from registration under the Securities Act and all
applicable state securities or "blue sky" laws.
(b) Each Management Investor and their Permitted Transferees hereby
agrees that, except for Transfers in connection with a Public Offering,
Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or
3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no
Transfer shall occur unless the transferee shall agree to become a party to, and
be bound to the same extent as its transferor by the terms of, this Agreement in
accordance with the provisions of Section 5.6 hereof.
(c) Each Management Investor and their Permitted Transferees hereby
agrees that such Stockholder shall not, without the prior written consent of
Vestar (which consent may be withheld by Vestar in its absolute discretion),
effect a Transfer prior to the Lapse Date, except for Transfers in connection
with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10,
3.11, 3.12, 3.13 or 3.14 hereof.
3.2 Permitted Transfers. (a) Any Management Investor may Transfer
any of the Securities beneficially owned by him (i) to his spouse, parent,
descendant, step-child, or step-grandchild or any executor, estate, guardian,
committee, trustee or other fiduciary acting as such solely on behalf or solely
for the benefit of any such spouse, parent, descendant, step-child or
step-grandchild (collectively, a "Family Group"), (ii) to any trust,
corporation, partnership or limited liability company, all of the beneficial
interests in which shall be held, directly or
<PAGE> 29
13
indirectly, by such Management Investor and/or one or more of the Family Group
of such Management Investor; provided, however, that during the period that any
such trust, corporation, partnership or limited liability company holds any
right, title or interest in any Securities, no person other than such Management
Investor or members of the Family Group of such Management Investor may be or
become beneficiaries, stockholders, general partners or members thereof, (iii)
which he has purchased on a stock exchange or in the over-the-counter market
after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan,
the Company, Vestar or any of Vestar's Affiliates. A transferee under this
Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee
of Vestar and its Affiliates in a Transfer made in accordance with this
Agreement, is referred to as a "Permitted Transferee."
(b) Notwithstanding anything in this Agreement to the contrary,
Vestar and its Affiliates shall be entitled from time to time, without
compliance with Section 3.5, to Transfer any or all of the Securities
beneficially owed by them to any of their Affiliates who agrees to become a
party to, and be bound to the same extent as its transferor by, the terms of
this Agreement.
3.3 Effect of Void Transfers. In the event of any purported Transfer
of any Securities in violation of the provisions of this Agreement, such
purported Transfer shall be void and of no effect and the Company shall not give
effect to such Transfer.
3.4 Legend on Securities. Each certificate representing Securities
issued to any Stockholder shall bear the following legend on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE
"COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND
THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE
COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF
ANY VOTING RIGHTS GRANTED BY THE SECURITIES."
<PAGE> 30
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3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in
effect, with respect to any proposed Transfer by any of Vestar and its
Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock
permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the
Transferring Stockholder shall have the obligation, and each other Stockholder
(other than Vestar or any of its Affiliates) shall have the right, to require
the proposed transferee to purchase from each such other Stockholder having and
exercising such right (each a "Tagging Stockholder") a number of shares of
Common Stock up to the product (rounded up to the nearest whole number) of (i)
the quotient determined by dividing (A) the aggregate number of shares of Common
Stock beneficially owned on a fully diluted basis by such Tagging Stockholder
and sought by the Tagging Stockholder to be included in the contemplated
Transfer by (B) the aggregate number of shares of Common Stock beneficially
owned on a fully diluted basis by the Transferring Stockholder and all Tagging
Stockholders and sought by the Transferring Stockholder and all Tagging
Stockholders to be included in the contemplated Transfer and (ii) the total
number of shares of Common Stock proposed to be directly or indirectly
Transferred to the transferee in the contemplated Transfer, and at the same
price per share of Common Stock and upon the same terms and conditions
(including without limitation time of payment and form of consideration) as to
be paid and given to the Transferring Stockholder; provided that a Stockholder
shall not be deemed to beneficially own any shares underlying unexercised
Options unless such Options are vested and exercisable as of the date of the Tag
Notice described in Section 3.5(b); and provided further that in order to be
entitled to exercise its right to sell shares of Common Stock to the proposed
transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to
make to the transferee the same representations, warranties, covenants,
indemnities and agreements as the Transferring Stockholder agrees to make in
connection with the proposed Transfer of the shares of Common Stock of the
Transferring Stockholder (except that in the case of representations and
warranties pertaining specifically to the Transferring Stockholder a Tagging
Stockholder shall make the comparable representations and warranties pertaining
specifically to itself); and provided further that all representations,
warranties and indemnities shall be made by Tagging Stockholders severally and
not jointly and that the liability of the Transferring Stockholder and the
Tagging Stockholders (whether pursuant to a representation, warranty, covenant,
indemnification provision or agreement) shall be evidenced in writings executed
by them and the transferee and shall be borne by each of them on a pro rata
basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and
wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a)
shall convert or exercise or exchange such number of Common Stock Equivalents
into or for Common Stock as may be required therefor on or prior to the closing
date of such Transfer.
(b) The Transferring Stockholder shall give notice (a "Tag Notice")
to all relevant Stockholders of each proposed Transfer giving rise to the rights
of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at
least 45 days prior to the proposed consummation of such Transfer, setting forth
the name of the Transferring Stockholder, the number of shares of Common Stock
proposed to be so Transferred, the name and address of the proposed transferee,
the proposed amount and form of consideration, the other terms and conditions of
payment offered by the proposed transferee and the representations, warranties
and indemnities to be made or given by the Transferring Stockholders, and a
representation that the proposed transferee has been informed of the tag-along
rights provided for in this Section 3.5 and has agreed to purchase shares of
Common Stock in accordance with the terms hereof. The tag-along rights provided
by
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this Section 3.5 must be exercised by each Tagging Stockholder within 20 days
following receipt of the notice required by the preceding sentence, by delivery
of a written notice to the Transferring Stockholder indicating such Tagging
Stockholder's desire to exercise its rights and specifying the number of shares
of Common Stock it desires to sell. The Transferring Stockholder shall be
entitled under this Section 3.5 to Transfer to the proposed transferee the
number of shares of Common Stock equal to the excess of (x) the number referred
to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of
Common Stock set forth in the written notices, if any, delivered by the Tagging
Stockholders pursuant to the preceding sentence (up to the maximum number of
shares of Common Stock beneficially owned by such Tagging Stockholder required
to be purchased by the proposed transferee pursuant to the first sentence of
Section 3.5(a)). If the proposed transferee fails to purchase shares of Common
Stock from any Tagging Stockholder that has properly exercised its tag-along
rights, then the Transferring Stockholder shall not be permitted to make the
proposed Transfer, and any such attempted Transfer shall be void and of no
effect, as provided in Section 3.3 hereof.
(c) If any of the Tagging Stockholders exercise their rights under
Section 3.5(a), (i) the first shares of Common Stock to be transferred by such
Tagging Stockholder must be Vested Purchased Shares until such Tagging
Stockholder owns no more Vested Purchased Shares, then Option Shares until such
Tagging Stockholder owns no more Option Shares, then any remaining Purchased
Shares and (ii) the closing of the purchase of the Common Stock with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Transferring Stockholder's Common Stock.
3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7
shall not be applicable to offers and sales of Securities in a Public Offering
or, if such Securities previously have been sold in a Public Offering, pursuant
to Rule 144 under the Securities Act.
3.7 Drag-Along Rights. So long as this Agreement shall remain in
effect, if any of Vestar and its Affiliates receives an offer from a Third Party
to purchase all or any portion of the outstanding shares of Common Stock and
such offer is accepted by Vestar or such Affiliate, as the case may be, then
each other Stockholder hereby agrees that it will, if requested in writing not
less than 15 days' prior to the requested Transfer date by Vestar or such
Affiliate, Transfer a pro rata number of Securities beneficially owned by it to
such Third Party on the terms of the offer so accepted by Vestar or such
Affiliate, as the case may be; including making the same representations,
warranties, covenants, indemnities and agreements that Vestar or such Affiliate,
as the case may be, agrees to make (except that, in the case of representations
and warranties pertaining specifically to Vestar or such Affiliate, as the case
may be, each other Stockholder shall make the comparable representations and
warranties pertaining specifically to itself); provided that all
representations, warranties and indemnities shall be made by Stockholders
severally and not jointly and that the liability of Stockholders (whether
pursuant to a representation, warranty, covenant, indemnification provision or
agreement) shall be evidenced in writings executed by them and the transferee
and shall be borne by each of them on a pro rata basis; and provided further
that the terms of such offer applicable to any Common Stock beneficially owned
by such other Stockholder are no less favorable than the terms of such offer
applicable to the Common Stock beneficially owned by Vestar or such Affiliate,
as the case may be, and their respective Affiliates (including with respect to
the amount and nature of consideration and time of receipt
<PAGE> 32
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thereof); and provided further that the first shares of Common Stock Transferred
by such other Stockholder must be Vested Purchased Shares until such other
Stockholder owns no more Vested Purchased Shares, then the Option Shares until
such other Stockholder owns no more Option Shares, then the portion of any
Options then held by such other Stockholder that are then vested and exercisable
(provided in the case of a Transfer of any such portion of the Options that the
Company shall have made acceptable arrangements with the transferee for the same
per share consideration to be paid to such Stockholder for such portion of the
Option as the transferee pays for the shares of Common Stock to be purchased by
the transferee, reduced by the aggregate option exercise price for the
transferred portion of the Options) until no portion of the Options held by such
Stockholder is vested and exercisable, and then any remaining Purchased Shares.
3.8 Rights of First Refusal. (a) Each Management Investor and their
Permitted Transferees agree that if, prior to a Qualified Public Offering, such
Management Investor or any of its Permitted Transferees receives a bona fide
offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer
Securities") then owned by such Management Investor or such Management
Investor's Permitted Transferees (collectively, the "Management Investor's
Transfer Group") from any Person (the "Offeror") which any member of the
Management Investor's Transfer Group wishes to accept (the "Management Investor
Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be
reduced to writing and shall provide a written notice (the "Transfer Notice") of
such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice
shall also contain an irrevocable offer to sell the Transfer Securities to the
Company, Vestar and Sheridan (in the manner set forth below) at a price equal to
the price contained in, and upon the same terms and conditions as the terms and
conditions contained in, the Transfer Offer and shall be accompanied by a true
and complete copy of the Transfer Offer (which shall identify the Offeror, the
Transfer Securities, the price contained in the Transfer Offer and the other
material terms and conditions of the Transfer Offer). At any time within 30 days
after the date of the receipt by the Company, Vestar and Sheridan of the
Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan
or any of their designated Affiliates shall have the right and option to
purchase all (but not less than all) of the Transfer Securities covered by the
Transfer Offer either (i) for the same consideration and on the same terms and
conditions as the Transfer Offer or (ii) if the Transfer Offer includes any
consideration other than cash, then, at the sole option of the Company, Vestar,
Sheridan, or any of their designated Affiliates, as applicable, at the
equivalent all cash price, determined in good faith by a majority of the members
of the Company's Board of Directors. If the option referred to in the preceding
sentence is exercised, on or prior to the 60th day after the date of receipt by
the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar,
Sheridan or any other designated Affiliates, as applicable, shall execute and
deliver to the Management Investor Offeree a written agreement in the form
included in the Transfer Offer, including representations, warranties, covenants
and indemnities, if the Transfer Offer included such written agreement, and
shall pay the relevant cash consideration, by delivering a certified bank check
or checks in (or, if the Management Investor Offeree so elects at least three
business days prior to the closing date in a writing specifying the Management
Investor Offeree's bank account and other wire Transfer instructions, by wire
transferring) the appropriate amount and shall deliver the relevant non-cash
consideration to the Management Investor Offeree against delivery at the
principal office of Sheridan of certificates or other instruments representing
the Transfer Securities so purchased, appropriately endorsed by the Management
Investor Offeree. If at the end of such 30-day period,
<PAGE> 33
17
the Company, Vestar and Sheridan have not delivered written notice of exercise
by them of their right to purchase the Transfer Securities pursuant to this
Section 3.8 or if at the end of such 60-day period, the Company, Vestar and
Sheridan have not tendered the purchase price for such shares in the manner set
forth above, the Management Investor Offeree shall be free for a period of 90
days from the end of such 30- or 60-day period, as applicable, to Transfer not
less than all of the Transfer Securities to the Offeror on the terms and
conditions set forth in the Transfer Notice (including the execution and
delivery of any written agreement in the form included in the Transfer Offer).
Such Offeror shall agree in a writing in form and substance reasonably
satisfactory to the Company to become a party hereto and be bound to the same
extent as the Management Investor Offeree by the provisions hereof. Promptly
after such sale, the Management Investor Offeree shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion and time
of completion of such sale and of the terms thereof as may reasonably be
requested by the Company. If for any reason any Management Investor Offeree does
not Transfer Transfer Securities to the Offeror on the terms and conditions set
forth in the Transfer Notice, or if any Management Investor Offeree wishes to
sell the Transfer Securities on terms other than those set forth in the Transfer
Notice, the provisions of this Section 3.8 shall again be applicable to the
Transfer Securities.
(b) The closing of the purchase of the Transfer Securities by the
Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate,
upon exercise of its right of first refusal pursuant to Section 3.8(a) shall
take place at the principal office of Sheridan on a date specified by the
Company, Sheridan, Vestar or any of their designated Affiliates, as applicable,
no later than the last day of the 60-day period after the giving of the Transfer
Notice.
(c) Notwithstanding anything in this Section 3.8 to the contrary,
(i) neither Vestar nor any of its designated Affiliates may exercise a right of
first refusal under this Section 3.8 unless Vestar has received a written notice
from the Company indicating the Company's intention not to exercise such right
of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its
designated Affiliates may exercise a right of first refusal under this Section
3.8 unless Sheridan has received a No ROFR Notice from Vestar.
3.9 Participation Right. (a) Except as otherwise set forth in
Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or
any of its Affiliates:
(i) additional shares of Common Stock or Common Stock Equivalents or
capital stock of the Company other than Common Stock and Common Stock
Equivalents ("Other Capital Stock"); or
(ii) any warrants, rights, calls, options or other securities
exchangeable for or exercisable or convertible into Other Capital Stock or
any other security other than Common Stock, Common Stock Equivalents or
Other Capital Stock entitled to participate in the Company's profits
(collectively, "Other Capital Stock Equivalents");
unless, prior to such Issuance, the Company notifies each Management Investor in
writing of the proposed Issuance and grants to such notified party or, at the
election of such notified party, one of its Affiliates the right (the "Right")
to subscribe for and purchase such additional shares of Common Stock or Other
Capital Stock or such additional shares or units of
<PAGE> 34
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Common Stock Equivalents or Other Capital Stock Equivalents (collectively,
"Equity Interests") so issued at the same price and upon the same terms and
conditions (including, in the event such Equity Interests are issued as a unit
together with other securities, the purchase of such other securities) as issued
in the Issuance such that:
(A) in the case of an Issuance in which shares of Common Stock or
Common Stock Equivalents are to be issued, immediately after giving effect
to the Issuance and exercise of the Right (including, for purposes of this
calculation, the issuance of shares of Common Stock upon conversion,
exchange or exercise of any Common Stock Equivalent issued in the Issuance
or subject to the Right), the shares of Common Stock beneficially owned by
the notified party and its Affiliates on a fully diluted basis (rounded to
the nearest whole share) shall represent the same percentage of the
aggregate number of shares of Common Stock outstanding on a fully diluted
basis as was beneficially owned by such notified party and its Affiliates
and Vestar and its Affiliates, respectively, immediately prior to the
Issuance; provided, that for purposes of the calculations required by this
Section 3.9(a)(A) notified parties and their Affiliates shall not be
deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance; and
(B) in the case of an Issuance in which shares of Other Capital
Stock or Other Capital Stock Equivalents are to be issued, the notified
party and its Affiliates shall have the Right to acquire a percentage of
the Other Capital Stock or Other Capital Stock Equivalents to be issued in
the Issuance equal to the percentage of shares of Common Stock on a fully
diluted basis that was beneficially owned by such notified party and its
Affiliates and Vestar and its Affiliates, respectively, immediately prior
to the Issuance; provided, that for purposes of the calculations required
by this Section 3.9(a)(B) notified parties and their Affiliates shall not
be deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance.
(b) The Right may be exercised by the notified party at any time by
written notice to the Company received by the Company within 20 days after the
date on which such notified party receives notice from the Company of the
proposed Issuance, and the closing of the purchase and sale pursuant to the
exercise of the Right shall occur at least 15 days (but not later than 180 days)
after the Company receives notice of the exercise of the Right and prior to or
concurrently with the closing of the Issuance. Notwithstanding the foregoing
provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of
Equity Interests pro rata to all holders of Common Stock and Other Capital
Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common
Stock Equivalent or any Other Capital Stock Equivalent outstanding on the
Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management
Investor or any other employee of the Company pursuant to a management stock
subscription agreement or stock option or other employee benefit plan of the
Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board
of Directors of the Company or a Subsidiary of the Company designated by Vestar
and its Permitted Transferees who is not a director, officer, general partner or
employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as
such to the
<PAGE> 35
19
Board of Directors of the Company or a Subsidiary of the Company, (v) any
Issuance pursuant to a bona fide underwritten public offering pursuant to an
effective registration statement under the Securities Act or (vi) any Issuance
of Mezzanine Securities.
3.10 Partial Transfers Following a Qualified Public Offering. Each
Senior Management Investor may, during the one year period commencing on the
second anniversary of the first Qualified Public Offering and during each one
year period commencing on each succeeding anniversary of such Qualified Public
Offering thereafter (each such anniversary being referred to as a "Measurement
Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option
Shares beneficially owned by such Senior Management Investor on the applicable
Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this
provision shall not permit a Senior Management Investor who has already
Transferred (pursuant to any provision of this Agreement which permits Transfers
by Senior Management Investors) the cumulative number of shares of Common Stock
he or she otherwise would be entitled to Transfer pursuant to this Section 3.10
to Transfer any additional shares of Common Stock.
3.11 Partial Transfers to Cover Option-Related Tax Payments.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by the Management Investor with Good Reason, and
thereafter such Management Investor exercises Options which would otherwise
expire unless so exercised, such Management Investor may Transfer Securities;
provided, that the aggregate purchase price for the Securities being Transferred
shall not exceed the total amount of taxes which such Management Investor's tax
consultant has reasonably advised will be due and owing in respect of such tax
year by such Management Investor as a result of such Management Investor
exercising such Options; and provided, further, that such Transfer shall be
subject to the right of first refusal provisions of Section 3.8.
3.12 Transfers to Other Management Investors.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then at
any time after the conclusion of the Second Call Period, such Management
Investor may Transfer all or any portion of the Securities beneficially owned by
him to one or more of the other Management Investors; provided, however, that if
the proposed purchase price for such Securities which is offered to the other
Management Investors is less than the relevant purchase price under Section
3.13(c), such proposed Transfer hereunder by such Management Investor shall be
subject to the right of first refusal provisions of Section 3.8.
3.13 Call Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated by the applicable employer for Cause, then within 180 days of the
employment termination date, and subject to Section 3.13(e), the Company,
Vestar, Sheridan or any of their designated Affiliates shall have the option to
purchase all or any portion of the Purchased Shares and Option Shares held by
such
<PAGE> 36
20
Management Investor and such Management Investor's Permitted Transferees by
providing written notice of the relevant election (including the number of
Securities to be purchased) to the applicable Management Investor and Permitted
Transferees (a "Call Notice"). The purchase price per share for such Securities
will be the lower of Cost and Fair Market Value on the date of termination of
employment.
(b) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated due to the death
or Disability of such Management Investor, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
such Securities will be the greater of Cost and Fair Market Value on the date of
termination of employment.
(c) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then
within the later of (1) 180 days of the employment termination date (and, with
respect to any Option Shares, within 180 days after the date of the last
exercise of any Options, if later) or (2) ten days after the applicable
Management Investor has rescinded his election to sell all or a portion of his
Purchased Shares which were to be paid for with a Junior Subordinated Note in
connection with the put right set forth in Section 3.14, and subject to Section
3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates
shall have the option to purchase all or any portion of the Purchased Shares and
Option Shares held by such Management Investor and such Management Investor's
Permitted Transferees by providing a Call Notice to the applicable Management
Investor and Permitted Transferees. The purchase price per share for (A) the
Applicable Percentage of the Purchased Shares and for all Option Shares will be
the greater of (x) Cost or (y) Fair Market Value on the date of termination of
employment and (B) the remaining portion of such Purchased Shares, if any, will
be Cost.
(d) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is voluntarily terminated by
such Management Investor without Good Reason, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
the Applicable Percentage of the Purchased Shares and for all Option Shares will
be Fair Market Value on the date of termination of employment and the purchase
price for the remaining portion of the Purchased Shares, if any, will be the
lower of (x) Cost or (y) Fair Market Value on the date of termination of
employment; provided that if such voluntary termination without Good Reason
occurs prior to the second anniversary of the Closing
<PAGE> 37
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Date, the Purchase Price per share for all Option Shares will be the lower of
(x) Cost or (y) Fair Market Value on the date of termination of employment.
(e) Notwithstanding anything in this Section 3.13 to the contrary
(i) neither Vestar nor any of its designated Affiliates may exercise a call
right under this Section 3.13 unless Vestar has received written notice from the
Company indicating the Company's intention not to exercise such call right (a
"No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates
may exercise a call right under this Section 3.13 unless Sheridan has received a
No Call Notice from Vestar.
(f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair
Market Value on the date of the Management Investor's termination of employment
and none of the Company, Vestar or Sheridan exercises the call right with
respect to the Purchased Shares and Option Shares which it could have purchased
at Cost (the "Cost Securities") during the 180 day period commencing on such
date of termination (the "Initial Call Period"), then the Company, Vestar or
Sheridan (subject once again to the provisions of Section 3.13(e) with respect
to the Second Call Period regardless of whether No Call Notices were issued in
the Initial Call Period) will have an additional right to call the Cost
Securities during the 90-day period commencing on the eighteen-month anniversary
of the Management Investor's termination of employment (the "Second Call
Period") by providing a Call Notice to the applicable Management Investor. The
purchase price per share for such Securities pursuant to Section 3.13(c)(A) will
be the greater of (x) Fair Market Value on the date of termination of employment
and (y) Fair Market Value on the first day of the Second Call Period and the
purchase price for such Securities pursuant to Section 3.13(c)(B) will be the
lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call
Period.
(g) The completion of the purchases pursuant to Sections 3.13(a),
(b), (c), (d) and (f) shall take place at the principal office of Sheridan on or
prior to the thirtieth (30th) day after the giving of the applicable Call
Notice. The repurchase price for the Securities shall be paid by delivery to the
appropriate Management Investor or Permitted Transferee of a certified bank
check or checks in the appropriate amount payable to the order of such
Management Investor or Permitted Transferee unless Sheridan is the party
exercising such call right and a Financing Default exists or, after giving
effect to such payment would exist, which prohibits such cash payment, in which
case the portion of the cash payment so prohibited shall be made, to the extent
permitted by any loan agreement, indenture or other agreement to which Sheridan
is a party, by Sheridan's delivery of a junior subordinated promissory note
(which shall be subordinated and subject in right of payment to the prior
payment of all indebtedness of Sheridan including, without limitation, any debt
outstanding under any credit agreement and any modifications, renewals,
extensions, replacements and refunding of all such indebtedness) of Sheridan (a
"Junior Subordinated Note") in a principal amount equal to the amount of the
purchase price which cannot be paid in cash, payable in five equal annual
installments commencing on the first anniversary of the issuance thereof and
bearing interest payable annually in arrears at the publicly announced prime
rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all
or any of the purchase price for any of the Securities with a Junior
Subordinated Note, and then resells such Securities for cash, the portion of the
accrued but unpaid interest and, to the extent of any excess, the outstanding
principal amount of the Junior Subordinated Note that is equal to the amount of
such cash proceeds shall become immediately due and payable, unless and to the
extent
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that payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, the payment
of all or any portion of the amounts outstanding under such Junior Subordinated
Note can be repaid by Sheridan without giving rise to a Financing Default (a
"Permitted Payment"), Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment (accrued interest first and then principal) in cash to the applicable
Management Investor or Permitted Transferee by delivery of a certified bank
check to the order of such Management Investor or Permitted Transferee. If
Sheridan cannot pay the purchase price for any Securities subject to a Call
Notice in cash or a Junior Subordinated Note due to any circumstance described
in this subparagraph 9(g), Sheridan shall not be permitted to exercise the
applicable call right.
3.14 Put Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated due to the death or Disability of such Management Investor, then
within 180 days of the employment termination date such Management Investor and
the members of the Family Group of such Management Investor shall have the
option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one
occasion from such Management Investor and the members of the Family Group of
such Management Investor, all or any portion of the Purchased Shares held by
such Management Investor and the members of the Family Group of such Management
Investor by providing written notice of his or their election (including the
number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase
price per share for such Securities will be Fair Market Value on the date of
termination of employment.
(b) If, at any time prior to the Lapse Date, a Senior Management
Investor's employment with the Company and its Subsidiaries is terminated by the
applicable employer without Cause or by such Senior Management Investor with
Good Reason, then within 180 days of the employment termination date such Senior
Management Investor shall have the option to sell to Sheridan, and Sheridan
shall be obligated to purchase, on one occasion from such Senior Management
Investor a number of Purchased Shares held by such Senior Management Investor
the aggregate purchase price for which under this Section 3.14(b) is not in
excess of the aggregate purchase price paid by such Senior Management Investor
on the Closing Date for all Securities purchased by such Senior Management
Investor on the Closing Date. Such Senior Management Investor shall exercise
such put right by providing a Put Notice to Sheridan. The purchase price per
share for (A) the Applicable Percentage of such Purchased Shares will be Fair
Market Value on the date of termination of employment and (B) the remaining
portion of such Purchased Shares, if any, will be the lower of Cost and Fair
Market Value on the date of termination of employment.
(c) The completion of the purchase pursuant to Section 3.14 (a)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice. The purchase price for the Purchased
Shares included in the Put Notice shall be paid by delivery to the appropriate
Management Investor or the members of his Family Group, as applicable, of a
certified bank check or checks in the appropriate amount payable to the order of
such Management Investor or the members of his Family Group, as applicable,
unless a Financing Default exists or, after giving effect to such payment would
exist, which prohibits such cash
<PAGE> 39
23
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the purchase price with a Junior Subordinated Note, Sheridan
shall give the notice of the principal amount of such note at least 15 days
prior to such purchase, and the relevant Management Investor shall have ten days
thereafter to rescind his election to sell all or a portion of his Purchased
Shares to be paid for with such note. If Sheridan pays all or any portion of the
purchase price for any Purchased Shares with a Junior Subordinated Note, and
then resells such Purchased Shares for cash, the portion of the accrued but
unpaid interest and, to the extent of any excess, the outstanding principal
amount of the Junior Subordinated Note that is equal to the amount of such cash
proceeds shall become immediately due and payable, unless and to the extent that
payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted
Payment can be made, Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment in cash to the applicable Management Investor or the members of his
Family Group, as applicable, by delivery of a certified bank check to the order
of such Management Investor or the members of his Family Group, as applicable.
(d) The completion of the purchase pursuant to Sections 3.14 (b)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice, at which time at least fifty percent of
the purchase price shall be paid. If Sheridan elects to pay less than all of the
purchase price initially, the remaining portion of the purchase price shall be
paid in one payment on or prior to the first anniversary of the giving of the
Put Notice. The purchase price for the Purchased Shares included in the Put
Notice shall be paid by delivery to the appropriate Senior Management Investor
of a certified bank check or checks in the appropriate amount payable to the
order of such Senior Management Investor unless a Financing Default exists or,
after giving effect to such payment would exist, which prohibits such cash
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the initial payment of the purchase price with a Junior
Subordinated Note, Sheridan shall give the Senior Management Investor notice of
the principal amount of such note at least 15 days prior to such purchase, and
the relevant Senior Management Investor shall have ten days thereafter to
rescind his election to sell all or a portion of his Purchased Shares to be paid
for with such note. If Sheridan pays all or any portion of the purchase price
for any Purchased Shares with a Junior Subordinated Note, and then resells such
Purchased Shares for cash, the portion of the accrued but unpaid interest and,
to the extent of any excess, the outstanding principal amount of the Junior
Subordinated Note that is equal to the
<PAGE> 40
24
amount of such cash proceeds shall become immediately due and payable, unless
and to the extent that payment of such accrued interest or outstanding principal
under the Junior Subordinated Note would constitute or result in a Financing
Default. If at any time after the issuance by Sheridan of a Junior Subordinated
Note, a Permitted Payment can be made, Sheridan shall, as promptly as
practicable but not later than thirty days after such payment becomes
permissible, pay the Permitted Payment (accrued interest first and then
principal) in cash to the applicable Senior Management Investor by delivery of a
certified bank check to the order of such Senior Management Investor.
SECTION 4. REGISTRATION RIGHTS
4.1 Demand Registration.
(a) Common Stock Request. Upon the written request (a "Request") of
Vestar or its designated Permitted Transferees that the Company effect the
registration under the Securities Act of all or part of the shares of Common
Stock owned or to be acquired upon conversion, exercise or exchange of Common
Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting
Stockholder"), the Company will use its best efforts to effect the registration
under the Securities Act of such shares.
(b) Registration Statement Form. Registrations under this Section
4.1 shall be on such appropriate registration form of the SEC as shall (i) be
selected by the Company and (ii) permit the disposition of the Common Stock
being registered in accordance with the intended method or methods of
disposition specified in the request for such registration. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the underwriters, the Requesting Stockholder and the
Company, is required to be included.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, or
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
Governmental Authority for any reason not attributable to the Requesting
Stockholder or any of its Affiliates and has not thereafter become effective.
(d) Limitations on Registration on Request. Notwithstanding anything
in this Section 4.1 to the contrary, in no event will (i) the Company be
required to effect more than one registration pursuant to Section 4.1(a) within
any 180 day period or (ii) the Requesting Stockholder be entitled to more than
five registrations in the aggregate pursuant to Section 4.1(a); unless in the
case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of
the costs and expenses of each such additional registration (unless either (x) a
registration so requested is not deemed to have been effected pursuant to
Section 4.1(c) for a reason not attributable to the Requesting Stockholder or
any of its Affiliates or (y) the number of shares of Common Stock sought to be
included by such Requesting Stockholder in such registration is reduced by more
than 25% pursuant to the provisions of Section 4.2(b)).
<PAGE> 41
25
4.2 Incidental Registration.
(a) Right to Include Common Stock and Common Stock Equivalents. If
the Company at any time proposes to register any shares of Common Stock (or
Common Stock Equivalents, including any registration of Common Stock Equivalents
pursuant to the exercise of rights under Section 4.2(b)) under the Securities
Act (except registrations on such form(s) solely for registration of Common
Stock or Common Stock Equivalents in connection with any employee benefit plan
or dividend reinvestment plan or a merger or consolidation), including
registrations pursuant to Section 4.1(a), whether or not for sale for its own
account, it will each such time as soon as practicable give written notice of
its intention to do so to all the Stockholders. Upon the written request (which
request shall specify the total number of shares of Common Stock or Common Stock
Equivalents intended to be disposed of by such Stockholder) of any Stockholder
made within 30 days after the receipt of any such notice (15 days if the Company
gives telephonic notice with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such shorter
period of time is required because of a planned filing date), the Company will
use all reasonable efforts to effect the registration under the Securities Act
of all Common Stock held or to be acquired upon conversion, exercise or exchange
of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be
registered by the Company, Common Stock Equivalents) by the Stockholders which
the Company has been so requested to register for sale in the manner initially
proposed by the Company; provided that the Company shall not be obliged to
register any Common Stock Equivalents which are not of the same class, series
and form as the Common Stock Equivalents proposed to be registered by the
Company. If the Company thereafter determines for any reason not to register or
to delay registration of the Common Stock or Common Stock Equivalents (provided,
however, that in the case of any registration pursuant to Section 4.1(a), such
determination shall not violate any of the Company's obligations under Section
4.1 or any other provision of this Agreement), the Company may, at its election,
give written notice of such determination to the Stockholders and (A) in the
case of a determination not to register, shall be relieved of the obligation to
register such Common Stock or Common Stock Equivalents in connection with such
registration (without prejudice, however, to any right the Requesting
Stockholder may have to request that such registration be effected as a
registration under Section 4.1(a)) and (B) in the case of a determination to
delay registering, shall be permitted to delay registering any Common Stock or
Common Stock Equivalents of a Stockholder for the same period as the delay in
registration of such other securities. No registration effected under this
Section 4.2(a) shall relieve the Company of any obligation to effect a
registration upon a Common Stock Request under Section 4.1(a).
(b) Priority in Incidental Registration. In a registration pursuant
to this Section 4.2, if the managing underwriter of such underwritten offering
shall inform the Company and the relevant Stockholders by letter of its belief
that the number of shares of Common Stock or Common Stock Equivalents, as the
case may be, to be included in such registration would adversely affect its
ability to effect such offering, then the Company will be required to include in
such registration only that number of shares of Common Stock or Common Stock
Equivalents which it is so advised should be included in such offering. Shares
of Common Stock or Common Stock Equivalents proposed by the Company to be
registered for issuance by the Company shall have the first priority in a
registration pursuant to Section 4.2(a) and all other shares of Common
<PAGE> 42
26
Stock or Common Stock Equivalents to be registered (whether or not requested to
be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given
second priority without preference among the relevant holders. If less than all
of the Stockholder's shares of Common Stock or Common Stock Equivalents are to
be registered, each such Stockholder's shares of Common Stock or Common Stock
Equivalents shall be included in the registration pro rata based on the total
number of shares of Common Stock or Common Stock Equivalents sought to be
registered by each Stockholder (as opposed to the Company).
(c) Custody Agreement and Power of Attorney. Upon delivering a
request under this Section 4.2, Management Investors and their Permitted
Transferees will, if requested by the Company, execute and deliver a custody
agreement and power of attorney in form and substance reasonably satisfactory to
the Company and one of the director designees referred to in Section 2.1(a)(i)
with respect to such Stockholder's shares of Common Stock or Common Stock
Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement
and Power of Attorney"). The Custody Agreement and Power of Attorney will
provide, among other things, that the Stockholder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein (who shall be
reasonably satisfactory to one of the director designees referred to in Section
2.1(a)(i)) a certificate or certificates representing such shares of Common
Stock or Common Stock Equivalents (duly endorsed in blank by the registered
owner or owners thereof or accompanied by duly executed stock powers in blank)
and irrevocably appoint said custodian and attorney-in-fact as such
Stockholder's agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on such Stockholder's behalf
with respect to the matters specified therein. Such Stockholder also agrees to
execute such other agreements as the Company may reasonably request to further
evidence the provisions of this Section 4.2.
4.3 Registration Procedures. In connection with the Company's
obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all
reasonable efforts to effect such registration and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use all reasonable efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (i) 180 days following the date on which such
registration statement is declared effective or (ii) the termination of the
offering being made thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
shares of Common Stock or Common Stock Equivalents, as the case may be, covered
by such registration statement until such Common Stock or Common Stock
Equivalents have been sold or such lesser period of time as the Company, any
seller of such Common Stock or Common Stock Equivalents or any underwriter is
required under the Securities Act to deliver a prospectus in accordance with the
intended methods of disposition by the sellers
<PAGE> 43
27
of such Common Stock or Common Stock Equivalents set forth in such registration
statement or supplement to such prospectus;
(c) furnish to each Stockholder which owns shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by such registration
statement (the "Selling Stockholders") and the managing underwriter, if any, at
least one executed original of the registration statement and such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, as may reasonably be requested by
such Selling Stockholder;
(d) use all reasonable efforts (i) to register or qualify all shares
of Common Stock or Common Stock Equivalents covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions where an
exemption is not available as the Selling Stockholders shall reasonably request,
(ii) to keep such registration or qualification in effect for so long as such
registration statement remains in effect and (iii) to take any other action
which may be reasonably necessary or advisable to enable the Selling
Stockholders to consummate the disposition in such jurisdictions of such Common
Stock or Common Stock Equivalents; provided that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, subject itself to taxation in any such jurisdiction or take
any action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Stockholders and the managing underwriter, if
any, promptly, and confirm such advice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to a registration statement or related prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the registered
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or information
becoming known which requires the making of any changes in a registration
statement or related prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (vi) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v)
above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document
<PAGE> 44
28
so that, as thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(h) use its best efforts to furnish to the Selling Stockholders a
signed counterpart, addressed to the Selling Stockholders and the underwriters,
if any, of (A) an opinion of counsel for the Company, and (B) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of the accountant's letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities (and dated the dates such opinions and comfort
letters are customarily dated) and, in the case of the accountant's letter, such
other financial matters, and in the case of the legal opinion, such other legal
matters, as the Selling Stockholders or the underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Selling Stockholders
an earnings statement satisfying the provisions of Section 10(a)(i) of the
Securities Act and Rule 158 promulgated thereunder, no later than 90 days after
the end of any 12-month period beginning after the effective date of a
registration statement pursuant to which shares of Common Stock or Common Stock
Equivalents are sold, which statement shall cover such 12-month period;
(j) cooperate with the Selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock or Common Stock Equivalents to
be sold; and enable such shares of Common Stock or Common Stock Equivalents to
be in such denominations and registered in such names as the Selling
Stockholders or the managing underwriters, if any, may request at least two
Business Days prior to any sale of shares of Common Stock or Common Stock
Equivalents to the underwriters;
(k) use its best efforts to cause the shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by the applicable
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Selling
Stockholder(s) or the underwriters, if any, to consummate the disposition of
such shares of Common Stock or Common Stock Equivalents;
(l) cause all shares or units of Common Stock or Common Stock
Equivalents, as the case may be, covered by the registration statement to be
listed on each securities exchange, if any, on which securities of such class,
series and form issued by the Company, if any, are then listed if requested by
the managing underwriters, if any, or the holders of a majority of the shares or
units of Common Stock or Common Stock Equivalents covered by the registration
statement and entitled hereunder to be so listed;
<PAGE> 45
29
(m) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
(n) as soon as practicable prior to the filing of any document which
is to be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement) provide copies
of such document to counsel to the Selling Stockholders and to the managing
underwriters, if any, and make the Company's representatives available for
discussion of such document and consider in good faith making such changes in
such document prior to the filing thereof as counsel for such Selling
Stockholders or underwriters may reasonably request.
The Company may require each Selling Stockholder to furnish to the
Company such information regarding such Selling Stockholder and the distribution
of such securities as the Company may from time to time reasonably request in
writing in order to comply with the Securities Act.
The Selling Stockholders agree that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue
disposition pursuant to such registration statement of any shares of Common
Stock or Common Stock Equivalents, as the case may be, covered by such
registration statement or prospectus until their receipt of the copies of the
supplemented or amended prospectus relating to such registration statement or
prospectus or until they are advised in writing by the Company that the use of
the applicable prospectus may be resumed (and the period of such discontinuance
shall be excluded from the calculation of the period specified in clause (x) of
Section 4.3(a)) and, if so directed by the Company, will deliver to the Company
(at the Company's expense, except as otherwise provided in Section 4.1(d)) all
copies, other than permanent file copies then in their possession, of the
prospectus covering such securities in effect at the time of receipt of such
notice. The Selling Stockholders agree to furnish the Company a signed
counterpart, addressed to the Company and the underwriters, if any, of an
opinion of counsel for the Selling Stockholders covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of selling stockholder's counsel
delivered to the underwriters in underwritten public offerings of securities
(and dated the dates such opinions are customarily dated) and such other legal
matters as the Company or the underwriters may reasonably request.
4.4 Underwritten Offerings.
(a) Demand Underwritten Offerings. In any underwritten offering
pursuant to a registration requested under Section 4.1, the Company will use its
best efforts to enter into an underwriting agreement for such offering with the
underwriters selected by the Requesting Stockholder, such agreement and
underwriters to be reasonably satisfactory in form and substance to the Company,
the Requesting Stockholder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type. The Selling Stockholders who
hold shares of Common Stock to be
<PAGE> 46
30
distributed by such underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
them and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to their
obligations. The Company may require that any or all of the representations and
warranties by, and the other agreements on the part of the Selling Stockholders
to and for the benefit of such underwriters shall also be made to and for the
benefit of the Company with due regard to the amount of Securities being sold by
such Selling Stockholder and the nature of such representations, warranties and
agreements and the underwriting.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any shares of its Common Stock or Common Stock Equivalents
under the Securities Act as contemplated by Section 4.2 and such Securities are
to be distributed by or through one or more underwriters, the Company and the
Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents
to be distributed by such underwriters in accordance with Section 4.2 hereof
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of them and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to their obligations. The Company may, at its option, require that any
or all of the representations and warranties by, and the other agreements on the
part of the Selling Stockholders to and for the benefit of such underwriters
shall also be made to and for the benefit of the Company with due regard to the
amount of Securities being sold by such Selling Stockholder and the nature of
such representations, warranties and agreements and the underwriting.
4.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Stockholders, the
underwriters and their respective counsels and accountants a reasonable
opportunity (but such Persons shall not have the obligation) to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the SEC, and, to the extent practicable, each amendment thereof or
supplement thereto, and, subject to the execution and delivery of a customary
confidentiality agreement, will give each of them such access to its books and
records (to the extent customarily given to the underwriters of the Company's
securities), and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary to conduct a reasonable investigation
within the meaning of the Securities Act.
4.6 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause shares of Common Stock and Common Stock Equivalents to be
registered under the Securities Act are subject to each of the following
limitations, conditions and qualifications:
<PAGE> 47
31
(a) The Company shall be entitled to postpone for a reasonable
period of time the filing or effectiveness of, or suspend the rights of Selling
Stockholders to make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (i) 15 days after the cessation of the circumstances described in
clauses (A) and (B) below or (ii) 120 days after the date of the determination
of the Board of Directors of the Company referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (i) of Section 4.3(a)) if the Board of Directors of
the Company determines in good faith that (A) there is a material undisclosed
development in the business or affairs of the Company (including any pending or
proposed financing, recapitalization, acquisition or disposition), the
disclosure of which at such time could be adverse to the Company's interests or
(B) the Company has filed a registration statement with the SEC, such
registration statement has not yet been declared effective, the Company is using
its reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such registration would be adversely affected. If the Company shall so delay the
filing of a registration statement, it shall, as promptly as possible, notify
the Selling Stockholders of such determination, and the Selling Stockholders
shall have the right (x) in the case of a postponement of the filing or
effectiveness of a registration statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (y) in the case of a suspension of the right
to make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company shall not be required hereby to include shares of
Common Stock or Common Stock Equivalents in a registration statement if, in the
written opinion (to be issued to, and relied upon by, the Stockholders seeking
inclusion) of outside counsel to the Company of recognized standing in
securities law matters, the beneficial owners of such Common Stock or Common
Stock Equivalents seeking registration would be free to sell all of such shares
of Common Stock or Common Stock Equivalents within the current calendar quarter
without registration under Rule 144 under the Securities Act.
(c) The Company's obligations shall be subject to the obligations of
the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish
all information and materials and to take any and all actions as may be required
under applicable federal and state securities laws and regulations to permit the
Company to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such registration statement.
(d) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
4.7 Expenses. The Company and Sheridan jointly and severally agree
to pay all reasonable out-of-pocket costs and expenses incurred in connection
with each registration of Common Stock or Common Stock Equivalents pursuant to
this Agreement, including, without limitation, the reasonable fees and
disbursements of a single firm of outside counsel retained by Selling
Stockholders which beneficially own a majority of the total number of shares or
units of Common Stock or Common Stock Equivalents being registered by Selling
Stockholders (the
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32
"Majority Selling Stockholders"), and any and all filing fees payable to the
SEC, fees with respect to filings required to be made with stock exchanges, the
NASDAQ and the NASD, fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of a single firm of
outside counsel for the underwriters or the Majority Selling Stockholders in
connection with blue sky qualifications of the Common Stock or Common Stock
Equivalents being registered and determination of its eligibility for investment
under the laws of such jurisdictions as the Selling Stockholders may designate),
printing expenses, fees and disbursements of counsel and accountants of the
Company, including costs associated with comfort letters, and fees and expenses
of other Persons retained by the Company, but excluding underwriters' expenses
(including discounts, commissions or fees of underwriters and expenses included
therein, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the securities being registered or
legal expenses of any Person other than the Company and the Selling
Stockholders) but including the fees and expenses of any qualified independent
underwriter required to participate in such registration pursuant to applicable
law or the requirements of the NASD. The Company and its Subsidiaries shall, in
any event in all cases, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), and the expense of securities law liability
insurance and rating agency fees, if any.
4.8 Indemnification.
(a) Indemnification by the Company. In connection with any
registration pursuant hereto in which shares of Common Stock or Common Stock
Equivalents are to be disposed of, the Company shall indemnify and hold
harmless, to the full extent permitted by law, each holder of such Common Stock
or Common Stock Equivalents to be disposed of and, when applicable, its
officers, directors, agents and employees and each Person who controls such
holder (within the meaning of the Securities Act or the Exchange Act) against
all losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, including, without
limitation, any loss, claim, damage, liability or expense resulting from the
failure to keep a prospectus current, except insofar as the same (i) are caused
by or contained in any information relating to such holder furnished in writing
to the Company by such holder expressly for use therein or (ii) are caused by
such holder's failure to deliver a copy of the current prospectus simultaneously
with or prior to such sale after the Company has furnished such holder with a
sufficient number of copies of such prospectus correcting such material
misstatement or omission or (iii) arise in respect of any offers to sell or
sales made during any period when a holder is required to discontinue sales
under Section 4.3(e) (and after such holder has received in writing the notice
contemplated by Section 4.3(e)). The Company shall also indemnify underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each person
who controls such Persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the holders of
such Common Stock or Common Stock Equivalents to be disposed of, and shall enter
into an indemnification agreement with such Persons containing such terms, if
requested.
<PAGE> 49
33
(b) Indemnification by Stockholders. In connection with each
registration statement effected pursuant hereto in which shares of Common Stock
or Common Stock Equivalents are to be disposed of, each Selling Stockholder
shall, severally but not jointly, indemnify and hold harmless, to the full
extent permitted by law, the Company, each other Selling Stockholder and their
respective directors, officers, agents and employees and each Person who
controls the Company and each other Selling Stockholder (within the meaning of
the Securities Act or the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in such registration
statement or prospectus or preliminary prospectus or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue statement or omission relates to such Selling Stockholder and is
contained in any information furnished in writing by such Selling Stockholder or
any of its Affiliates to the Company expressly for inclusion in such
registration statement or prospectus. In no event shall the liability of any
Selling Stockholder hereunder be greater in amount than the dollar amount of the
proceeds actually received by such Selling Stockholder upon the sale of the
securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder shall give prompt notice to the indemnifying party of
any claim with respect to which it shall seek indemnification and shall permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the indemnifying party shall have agreed to pay such fees or expenses, or (ii)
the indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (iii) in the opinion of
outside counsel to such Person there may be one or more legal defenses available
to such Person which are different from or in addition to those available to the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). If such defense is not assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent (but such consent shall not be unreasonably withheld). No
indemnified party shall be required to consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a written
release in form and substance reasonably satisfactory to such indemnified party
from all liability in respect of such claim or litigation. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim shall
not be obligated to pay the fees and expenses of more than one firm of counsel
(and, if necessary, local counsel) for all parties indemnified by such
indemnifying party with respect to such claim, unless in the written opinion of
outside counsel to an indemnified party a conflict of interest as to the subject
matter exists between such indemnified party and another indemnified party with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel for such indemnified party.
<PAGE> 50
34
(d) Contribution. If for any reason the indemnification provided for
herein is unavailable to an indemnified party or is insufficient to hold it
harmless as contemplated hereby, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of any Selling Stockholder for
such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received by such Selling Stockholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
4.9 Participation in Underwritten Registrations. No Stockholder or
Permitted Transferee may participate in any underwritten registration hereunder
unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of
Common Stock or Common Stock Equivalents on the basis provided in and in
compliance with any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7
under the Exchange Act, and (b) completes and executes all questionnaires,
appropriate and limited powers of attorney, escrow agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements; provided that all such documents shall be
consistent with the provisions hereof.
4.10 Rule 144. The Company hereby covenants that after it has filed
(and such registration statement has become effective) a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of
Common Stock, the Company will file in a timely manner all reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any Stockholder, make publicly
available other information so long as necessary to permit sales by such
Stockholder under Rule 144 under the Securities Act) and will take such further
action as any Stockholder may reasonably request to the extent required from
time to time to enable such Stockholder to sell shares of Common Stock under
Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management
Investor shall Transfer shares of Common Stock under Rule 144 unless expressly
permitted to do so by the terms of this Agreement.
4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any
of its shares of Common Stock or Common Stock Equivalents is included in a
registration statement filed by the Company in connection with an underwritten
public offering it shall not effect any public sale or distribution of shares of
Common Stock or Common Stock Equivalents during the 30 days prior to or the 180
day period beginning on the effective date of such registration statement
(except as part of such registration) if and to the extent reasonably requested
in writing (with reasonable prior notice) by the managing underwriter of the
underwritten public offering.
(b) The Company agrees not to effect any primary public sale or
distribution of any Common Stock or Common Stock Equivalents, as the case may
be, during the 10 days prior to and the 180 day period beginning on the
effective date of any registration statement in which
<PAGE> 51
35
any Stockholder is participating in connection with an underwritten public
offering of Common Stock or Common Stock Equivalents, as the case may be, if and
to the extent reasonably requested in writing (with reasonable prior notice) by
the managing underwriter of the underwritten public offering.
4.12 Mezzanine Securities. Notwithstanding anything to the contrary
herein, the Company may grant registration rights to holders of Mezzanine
Securities which are more, as or less favorable to such holders than the
registration rights of the parties hereto. To the extent that Mezzanine
Securities consist of Common Stock or Common Stock Equivalents, holders of
Mezzanine Securities may be given the right by the Company to participate in
registrations as if such holders were Stockholders, and the Company shall not be
obliged hereunder to comply with any provision of this Section 4 in respect of a
registration of Mezzanine Securities.
SECTION 5. MISCELLANEOUS
5.1 Additional Securities Subject to Agreement. Each Stockholder
agrees that any other Securities which it shall hereafter acquire by means of a
stock split, stock dividend, distribution, exercise of stock options, or
otherwise (other than Mezzanine Securities or pursuant to a Public Offering or
Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the
same extent as if held on the date hereof.
5.2 Termination. Except as otherwise provided herein, this Agreement
shall terminate, and thereby become null and void, as to any particular
Securities, on the date on which they are sold in a Public Offering or are sold
pursuant to Rule 144 under the Securities Act (unless such Securities are
reacquired by a Stockholder).
5.3 Injunctive Relief. The Stockholders and their Permitted
Transferees acknowledge and agree that a violation of any of the terms of this
Agreement will cause the Stockholders and their Permitted Transferees
irreparable injury for which adequate remedy at law is not available.
Accordingly, it is agreed that each Stockholder and Permitted Transferee shall
be entitled to an injunction, restraining order or other equitable relief to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction in the
United States or any state thereof, in addition to any other remedy to which
they may be entitled at law or equity.
5.4 Other Stockholders' Agreements. None of the Stockholders shall
enter into any stockholder agreement or other arrangement of any kind with any
Person with respect to any Securities which is inconsistent with the provisions
of this Agreement or which may impair its ability to comply with this Agreement.
5.5 Amendments. This Agreement may be amended only by a written
instrument signed (a) by Vestar, so long as it or its Affiliates own Securities,
and (b) by Stockholders other than Vestar and its Affiliates which own on a
fully diluted basis Securities representing at least a majority of the voting
power represented by all Securities outstanding on a fully diluted basis and
owned by all Stockholders other than Vestar and its Affiliates.
<PAGE> 52
36
5.6 Successors, Assigns and Transferees. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their Permitted Transferees and their respective successors, each of
which Permitted Transferees shall agree, in a writing in form and substance
satisfactory to the Company and the owners on a fully diluted basis of
Securities representing at least a majority of the voting power represented by
all Securities outstanding on a fully diluted basis and owned by all
Stockholders, to become a party hereto and be bound to the same extent as its
transferor hereby, provided that no Stockholder may assign to any Permitted
Transferee any of its rights hereunder other than in connection with a Transfer
to such Permitted Transferee of Securities in accordance with the provisions of
this Agreement.
5.7 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or when delivered by a
recognized courier or, in the case of telecopy notice, when received, addressed
as follows to the parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
if to the Company, Sheridan or Vestar, to it:
c/o Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Facsimile: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Facsimile: (212) 455-2502
if to any other Stockholder, to such Stockholder at such
Stockholder's address or telecopy number set forth in the books
and records of the Company.
5.8 Integration. This Agreement and the documents referred to herein
or delivered pursuant hereto contain the entire understanding of the parties
with respect to the subject matter hereof and thereof. There are no agreements,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof and thereof other than those expressly set forth herein
and therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE> 53
37
5.9 Severability. If one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
5.11 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
except for matters directly within the purview of the General Corporation Law of
the State of Delaware (the "DGCL"), which shall be governed by the DGCL.
5.12 Jurisdiction. Any action to enforce, which arises out of or in
any way relates to, any of the provisions of this Agreement may be brought and
prosecuted in such court or courts located within the States of New York as
provided by law; and the parties consent to the jurisdiction of such court or
courts located within the States of New York and to service of process by
registered mail, return receipt requested, or by any other manner provided by
New York law.
5.13 Management Investors. Each employee or director of the Company
or any of its Subsidiaries who becomes party to a stock subscription agreement
or option agreement with any of the Company and its Subsidiaries after the date
hereof shall become a party hereto and shall be bound hereby. The Company shall
not issue any securities to an employee or director of the Company or any of its
Subsidiaries unless he or she enters into a supplementary agreement with the
Company agreeing to be bound by the terms hereof in the same manner as the other
Management Investors. Each such supplementary agreement shall become effective
upon its execution by the Company and such employee or director, and it shall
not require the signature or consent of any other party hereto. Such
supplementary agreement may modify some of the terms hereof as they effect such
employee or director; provided that the modified terms shall be no more
favorable to such employee or director than the terms set forth herein.
5.14 83(b) Election. Promptly after the Closing Date, each
Management Investor shall, with respect to all Securities beneficially owned by
such Management Investor, make a timely election under Section 83(b) of the Code
in accordance with applicable Regulations thereunder.
5.15 Management Investor Representative. Each Management Investor
hereby designates and appoints (and each Permitted Transferee of each such
Management Investor shall be deemed to have so designated and appointed)
Mitchell Eisenberg, with full power of substitution (the "Management Investor
Representative") as the representative of each such Person to perform all such
acts as are required, authorized or contemplated by this Agreement to
<PAGE> 54
38
be performed by any such Person and hereby acknowledges that the Management
Investor Representative shall be the only Person authorized to take any action
so required, authorized or contemplated by this Agreement by each such Person.
Each such Person further acknowledges that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive the
death or incapacity of such Person. Each such Person hereby authorizes (and each
Permitted Transferee shall be deemed to have authorized) the other parties
hereto to disregard any notice or other action taken by such Person pursuant to
this Agreement on any action so taken or any notice given by the Management
Investor Representative and are and will be entitled and authorized to give
notices only to the Management Investor Representative for any notice
contemplated by this Agreement to be given to any such Person. A successor to
the Management Investor Representative may be chosen by Management Investors
which own on a fully diluted basis Securities representing at least a majority
of the voting power represented by all Securities outstanding on a fully diluted
basis and owned by all Management Investors, provided that written notice
thereof is given by the successor to the Management Investor Representative to
the Company. Whenever any action or consent (but not any forbearance) is
required to be taken or given by the Management Investors, the action or consent
of the Management Investor Representative shall be considered the act or consent
of all the Management Investors, and Vestar and the Company shall be protected
in relying on such act or consent.
5.16 Covenant Not to Compete. (a) Each Management Investor who is
not a Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
non-competition provision hereby covenants and agrees that, except as provided
below, during the Term of Employment and the Non-Competition Period, the
Management Investor shall not, without the express written consent of the
Company, directly or indirectly, engage in any activity which is, or participate
or invest in or assist (whether as owner, part-owner, stockholder, partner,
director, officer, trustee, employee, agent, independent contractor or
consultant, or in any other capacity) any Competitive Enterprise, except that
the Management Investor may make passive investments in a Competitive Enterprise
the shares of which are publicly traded if such investment constitutes less than
one percent of the equity of such enterprise. Without implied limitation, the
forgoing covenant shall include hiring or attempting to hire for or on behalf of
any such Competitive Enterprise any officer or other employee of Sheridan or any
Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee
to terminate his or her relationship or employment with Sheridan or any
Affiliate of Sheridan, soliciting for or on behalf of any such Competitive
Enterprise any client or customer (including any Medical Customer) of Sheridan
or any Affiliate of Sheridan, and diverting to any Person, any client or
business opportunity of Sheridan or any Affiliate of Sheridan.
(b) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period, each
Management Investor who is not a Senior Management Investor and who is not a
party to a written employment agreement with the Company or any of its
Subsidiaries that contains a non-competition provision shall not devote any time
to consulting, lecturing or engaging in other self-employment or employment
activities without the prior written consent of Sheridan.
(c) This Section 5.16 shall survive the termination of this
Agreement.
<PAGE> 55
39
5.17 Business Opportunities. Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a business
opportunities provision agrees, while he is employed by any of the Company and
its Subsidiaries, to offer or otherwise make known or available to the Company
or any Subsidiary, as directed by the Company and without additional
compensation or consideration, any business prospects, contracts or other
business opportunities that he may discover, find, develop or otherwise have
available to him in any field in which the Company or any of its Affiliates is
engaged, and further agrees that any such prospects, contracts or other business
opportunities shall be the property of the Company.
5.18 Confidentiality. (a) Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
confidentiality provision acknowledges that the Management Investor has and will
necessarily become informed of, and have access to, certain valuable and
confidential information of the Company and its Affiliates, including, without
limitation, trade secrets, technical information, plans, lists of patients,
data, records, fee schedules, computer programs, manuals, processes, methods,
intangible rights, contracts, agreements, licenses, personnel information and
the identity of health care providers (collectively, the "Confidential
Information"), and that the Confidential Information, even though it may be
contributed, developed or acquired in whole or in part by the Management
Investor, is the Company's exclusive property to be held by the Management
Investor in trust and solely for the Company's benefit. Accordingly, except as
required by law, the Management Investor shall not, at any time, either during
or subsequent to the Term of Employment, use, reveal, report, publish, copy,
transcribe, Transfer or otherwise disclose to any person, corporation or other
entity, any of the Confidential Information without the prior written consent of
the Company, except to responsible officers and employees of the Company and its
Subsidiaries and other responsible persons who are in a contractual or fiduciary
relationship with the Company or one of its Subsidiaries and except for
information which legally and legitimately is or becomes of general public
knowledge from authorized sources other than the Management Investor.
(b) Upon the termination of the Term of Employment, each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a confidentiality provision shall promptly deliver to the Company all
property and possessions of the Company and its Subsidiaries, including all
drawings, manuals, letters, notes, notebooks, reports, copies, deliverable
Confidential Information and all other materials relating to the Company's and
its Subsidiaries' business which are in the Management Investor's possession or
control.
5.19 Effectiveness. This Agreement shall become effective on the
Closing Date.
<PAGE> 56
40
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg
---------------------------------
Name: Mitchell Eisenberg
VESTAR/CALVARY INVESTORS, LLC
By: VESTAR CAPITAL PARTNERS III, L.P.,
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
<PAGE> 57
/s/ Mitchell Eisenberg
--------------------------------------
MITCHELL EISENBERG
/s/ Lewis D. Gold
--------------------------------------
LEWIS D. GOLD
/s/ Michael F. Schundler
--------------------------------------
MICHAEL F. SCHUNDLER
/s/ Jay a. Martus
--------------------------------------
JAY A. MARTUS
/s/ Gilbert L. Drozdow
--------------------------------------
GILBERT L. DROZDOW
<PAGE> 58
SCHEDULE 1
INITIAL OTHER
MANAGEMENT INVESTORS
GILBERT L. DROZDOW
<PAGE> 59
Exhibit B
Vestar/Calvary Holdings, Inc.
1999 Stock Option Plan
SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary
Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional
officers, key employees and outside directors of, and consultants to, the
Company and its Subsidiaries and (ii) enabling such individuals to participate
in the long-term growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean any entity that, directly or indirectly, is
controlled by, controls or is under common control with, the Company.
"Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Option, which may, but need
not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the earlier to occur of (x) the date
of the sale or disposition, in one or a series of related transactions, of
all or substantially all of the assets of the Company to any "person" or
"group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the
Exchange Act), other than Vestar, or (y) the date of the sale, exchange or
other disposition by Vestar and its Affiliates, in one or a series of
transactions (including, without limitation, by way of merger,
reorganization, recapitalization, consolidation, Public Offering (as
defined in the Stockholders' Agreement), sale of capital stock or assets
of Sheridan or any other Subsidiary of the Company or similar transaction
that results in the disposition, directly or indirectly, of the equity
interests of Vestar and its Affiliates (other than the Management
Investors) in the Company) (collectively, an "Exit Transaction") of 70% or
more of the sum of (1) their equity interest in the Company immediately
following the Closing Date (as defined in the Stockholders'sAgreement)
plus (2) any additional capital contributions to, or investments in, the
Company made by any of Vestar and its Affiliates after the Closing Date
(clauses (1) and (2), collectively, the "Aggregate Investment"); provided
that, in the case of (y) either (A) the consideration received by Vestar
and its Affiliates in the Exit Transaction for 70% or more of the
Aggregate Investment is cash or securities that are distributed in kind to
the limited partners of Vestar Capital Partners III, L.P. and its
Affiliates or a combination thereof or (B) the Exit Transaction results in
(i) designees of Vestar and its Affiliates not constituting a majority of
the Board of Directors (or analogous governing body) of the Company and
(ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding
<PAGE> 60
2
securities of the Company entitled to vote generally in the election of
directors (or members of an analogous governing body) of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the compensation committee of the Board, or
such other committee of the Board as may be designated by the Board to
administer the Plan.
"Company" shall have the meaning specified in the Stockholders'
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall have the meaning specified in the
Stockholders' Agreement.
"Management Investor" shall have the meaning specified in the
Stockholders' Agreement.
"Option" shall mean a right to purchase Shares from the Company that
is granted under Section 6 of the Plan.
"Participant" shall mean any officer, key employee or outside
director of, or consultant to, the Company or its Subsidiaries eligible
for an Option under Section 5 of the Plan and selected by the Committee to
receive an Option under the Plan.
"Performance Option" shall mean an Option granted under the Plan
which becomes exercisable, or for which the period of exercisability is
accelerated, upon the satisfaction of certain performance criteria
established by the Committee and set forth in the Award Agreement
evidencing such option.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock
Option Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by
the SEC under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the staff thereof.
"Shares" shall mean (i) shares or units of Common Stock (as defined
in the Stockholders' Agreement) or (ii) as may be determined by the
Committee pursuant to Section 4(b).
<PAGE> 61
3
"Stockholders' Agreement" shall mean the Agreement, dated as of
March 24, 1999, among the Company and the other parties identified
therein.
"Subsidiary" shall mean any entity that, directly or indirectly,
is controlled by the Company.
"Substitute Options" shall have the meaning specified in Section
4(c).
"Time Option" shall mean an Option granted under the Plan, which is
not a Performance Option, and which becomes exercisable over time based on
a Participant's continued employment with the Company or its Subsidiaries.
"Vestar" shall mean Vestar Capital Partners III, L.P. and any of
its Affiliates.
SECTION 3. Administration. (a) The Plan shall be administered by the
Committee. Subject to the terms of the Plan, any Award Agreement and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Options to be
granted to a Participant; (iii) determine the number of Shares to be covered by,
or with respect to which payments, rights, or other matters are to be calculated
in connection with, Options; (iv) determine the terms and conditions of any
Option; (v) determine whether, to what extent, and under what circumstances
Options may be settled or exercised in cash, Shares, other securities, other
Options or other property, or canceled, forfeited, or suspended and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Options, other property, and other amounts
payable with respect to an Option shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret,
administer, reconcile any inconsistency, correct any default and/or supply any
omission in the Plan and any instrument or agreement relating to, or Option made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan and subject to the
terms of any Award Agreement, all designations, determinations, interpretations,
and other decisions under or with respect to the Plan or any Option shall be
within the sole discretion of the Committee, may be made at any time and shall
be final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Option, and any
holder of Shares.
(c) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option
hereunder.
<PAGE> 62
4
SECTION 4. Shares Available for Options.
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
the aggregate number of Shares with respect to which Options may be granted
under the Plan shall be 1,150,000; provided, however, that in no event shall the
number of Shares subject to Time Options granted under the Plan exceed 666,667.
If, after the effective date of the Plan, any Shares covered by an Option
granted under the Plan, or to which such an Option relates, are forfeited, or if
an Option has expired, terminated or been cancelled for any reason whatsoever
(other than by reason of exercise or vesting), then the Shares covered by such
Option shall again be, or shall become, Shares with respect to which Options may
be granted hereunder.
(b) Adjustments. In the event that the Committee determines that any Exit
Transaction, dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee in its
discretion to be necessary or appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it in good faith
deems equitable, adjust any or all of (i) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Options may be granted, (ii) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
subject to outstanding Options, and (iii) the exercise price with respect to any
Option or, if deemed appropriate in connection with a Change of Control, make
provision for an immediate cash payment to the holder of an outstanding Option
in consideration for the cancellation of such Option in an amount equal to the
excess, if any, of the Fair Market Value of the Shares subject to the Options
over the aggregate exercise price of such Option.
(c) Substitute Options. Options may be granted, in the discretion of the
Committee, under the Plan in assumption of, or in substitution for, outstanding
awards previously granted by a company acquired by the Company or with which the
Company combines ("Substitute Options"). The number of Shares underlying any
Substitute Options shall be counted against the aggregate number of Shares
available for Options under the Plan.
(d) Sources of Shares Deliverable Under Options. Any Shares delivered
pursuant to an Option may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any officer, key employee or outside director of,
or consultant to, the Company or any of its Subsidiaries (including any
prospective officer or key employee) shall be eligible to be designated a
Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Options shall
be granted, the
<PAGE> 63
5
number of Shares to be covered by each Option, the exercise price therefor and
the conditions and limitations applicable to the exercise of the Option. None of
the Options granted under the Plan are intended to meet the requirements of
Section 422 of the Code or any successor provision thereto.
(b) Exercise Price. The Committee shall establish the exercise price at
the time each Option is granted, which exercise price shall be set forth in the
applicable Award Agreement.
(b) Exercise. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award Agreement or, with the consent of the
Participant thereafter. The Committee may impose such conditions with respect to
the exercise of Options, including without limitation, any relating to the
application of federal or state securities laws, as it may deem necessary or
advisable.
(c) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Such payment shall be made in cash or by bank check or,
subject to the consent of the Committee in its sole discretion, in Shares which
have been owned by the Participant for at least six months, such Shares to be
valued at their Fair Market Value as of the date of exercise.
SECTION 7. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that any such amendment, alteration, suspension, discontinuance or termination
that would impair the rights of any Participant or any holder or beneficiary of
any Option theretofore granted shall not to that extent be effective without the
consent of the affected Participant, holder or beneficiary.
(b) Amendments to Options. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Option theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment or
alteration that would impair the rights of any Participant or any holder or
beneficiary of any Option theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary. In addition, with the consent of any Participant, holder or
beneficiary, the Company may suspend, discontinue, cancel or terminate any
Option theretofore granted, prospectively or retroactively
(c) Adjustment of Options Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the performance criteria applicable to outstanding Performance Options in the
event of any extraordinary and nonrecurring events affecting the Company or its
Subsidiaries, or the financial statements of the Company or its Subsidiaries, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines in good faith that such adjustments are necessary in
order to prevent dilution or enlargement of rights under such Performance
Options.
<PAGE> 64
6
SECTION 8. Change of Control. In the event of a Change of Control after
the date of the adoption of this Plan, (i) any outstanding Time Options then
held by Participants, which are unexercisable or otherwise unvested, shall
automatically be deemed exercisable or otherwise vested, as the case may be, as
of immediately prior to such Change of Control and (ii) any outstanding
Performance Options, whether exercisable or not, then held by Participants,
shall continue to be governed by the terms of each such Participant's Award
Agreement.
SECTION 9. General Provisions.
(a) Nontransferability.
(i) Each Option shall be exercisable only by the Participant during the
Participant's lifetime, or, if permissible under applicable law, by the
Participant's legal guardian or representative. No Option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant otherwise than by will or by the laws of descent and distribution
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(ii) Notwithstanding the foregoing, the Committee may in the applicable
Award Agreement evidencing an Option granted under the Plan or at any time
thereafter in an amendment to an Award Agreement provide that Options granted
hereunder may be transferred by the Participant to whom such Option was granted
(the "Grantee") without consideration, subject to such rules as the Committee
may adopt to preserve the purposes of the Plan, to:
(A) the Grantee's spouse, children or grandchildren (including
adopted and stepchildren and grandchildren) (collectively, the "Immediate
Family");
(B) a trust solely for the benefit of the Grantee and his or her
Immediate Family; or
(C) a partnership or limited liability company whose only partners
or members are the Grantee and his or her Immediate Family members;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); provided that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the requirements
of the Plan and any applicable Award Agreement evidencing the Option.
The terms of any Option transferred in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee and any
reference in the Plan or in an Award Agreement to an optionee, Grantee or
Participant shall be deemed to refer to the Permitted Transferee, except
that (a) Permitted Transferees shall not be entitled to transfer any
Options, other than by will or the laws of descent and distribution; (b)
Permitted Transferees shall not be entitled to exercise any transferred
Options unless
<PAGE> 65
7
there shall be in effect a registration statement on an
appropriate form covering the Shares to be acquired pursuant to the
exercise of such Option if the Committee determines that such a
registration statement or form is necessary or appropriate, (c) the
Committee or the Company shall not be required to provide any notice to a
Permitted Transferee, provided all required notices are given to the
Grantee and (d) the consequences of termination of the Grantee's
employment by, or services to, the Company or any of its Affiliates under
the terms of the Plan and the applicable Award Agreement shall continue to
be applied with respect to the Grantee, following which the Options shall
be exercisable by the Permitted Transferee only to the extent, and for the
periods, specified in the Plan and the applicable Award Agreement.
(b) No Rights to Options. No Participant or other Person shall have any
claim to be granted any Option, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Options. The terms and
conditions of Options and the Committee's determinations and interpretations
with respect thereto need not be the same with respect to each Participant
(whether or not such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other securities of
the Company delivered under the Plan pursuant to any Option or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or other
securities are then listed, any applicable Federal or state laws, and any
applicable written agreements between Vestar and/or the Company and the
Participants including, without limitation, the Stockholders' Agreement, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(d) Withholding.
(i) A Participant shall be required to pay to the Company or any
Affiliate and the Company shall have the right and is hereby authorized to
withhold, any applicable withholding taxes in respect of an Option, its exercise
or any payment or transfer under an Option or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such withholding taxes.
(ii) Notwithstanding any provision of this Plan to the contrary, in
connection with the transfer of an Option to a Permitted Transferee pursuant to
Section 9(a) of the Plan, the Grantee shall remain liable for any withholding
taxes required to be withheld upon the exercise of such Option by the Permitted
Transferee.
(e) Award Agreements. Each Option hereunder shall be evidenced by an Award
Agreement, which shall be delivered to the Participant and shall specify the
terms and conditions of the Option and any rules applicable thereto, including
but not limited to the effect on such Option of the death, disability or
termination of employment or service of a Participant, and the effect, if any,
of such other events as may be determined by the Committee.
(f) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other
<PAGE> 66
8
compensation arrangements, which may, but need not, provide for the grant of
options (subject to stockholder approval if such approval is required), and such
arrangements may be either generally applicable or applicable only in specific
cases.
(g) No Right to Employment. The grant of an Option shall not be construed
as giving a Participant the right to be retained in the employ of, or in any
consulting relationship to, the Company or any Affiliate. Further, the Company
or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(h) No Rights as Stockholder. Subject to the provisions of the applicable
Option, no Participant or holder or beneficiary of any Option shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares.
(i) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of New York.
(j) Severability. If any provision of the Plan or any Option is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Option, or would disqualify the Plan or any Option under any
law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Option, such provision shall be stricken
as to such jurisdiction, Person or Option and the remainder of the Plan and any
such Option shall remain in full force and effect.
(k) Other Laws. The Committee may refuse to issue or transfer any Shares
or other consideration under an Option if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration will violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Option shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Option granted hereunder shall be construed as an offer to
sell securities of the Company, and no such offer shall be outstanding, unless
and until the Committee in its sole discretion has determined that any such
offer, if made, would be in compliance with all applicable requirements of the
U.S. federal and any other applicable securities laws.
(l) No Trust or Fund Created. Neither the Plan nor any Option shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Option, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
<PAGE> 67
9
(m) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(n) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the persons and/or entities who own, immediately after giving effect
to the Effective Time (as defined in the Agreement and Plan of Merger dated as
of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and
Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding
stock of the Company, determined in a manner consistent with Section 280G(b)(5)
of the Internal Revenue Code of 1986, as amended and the proposed regulations
promulgated thereunder. If such approval is not obtained, this Plan and any
Options granted under the Plan shall be null and void and of no force and
effect.
(b) Expiration Date. No Option shall be granted under the Plan after
December 31, 2009. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Option granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Option or to waive any conditions or rights under any such
Option shall, continue after December 31, 2009.
SECTION 11. Awards Subject to Stockholders' Agreement.
Options granted under the Plan and any Shares delivered upon the exercise
or settlement of any Options granted hereunder shall be subject to the
Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement
as it may be amended from time to time are hereby incorporated herein by
reference. In the event of a conflict between any term or provision contained
herein and any terms or provisions of the Stockholders' Agreement, the
applicable provisions of the Stockholders' Agreement will govern and prevail.
<PAGE> 68
Exhibit C
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
PERFORMANCE OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - ----------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 69
2
(a) Time Vesting.
Subject to paragraphs (b), (c) and (d) of this Section 2, the Option
shall vest and become exercisable in full on the ninth anniversary of the
purchase of shares of common stock of Sheridan pursuant to the Offer (the date
of such purchase being the "Purchase Date").
(b) Accelerated Vesting Based Upon Performance.
(i) Subject to the Participant's continued employment with the
Company, the Option shall vest and become exercisable on an accelerated basis
with respect to up to twenty-five percent (25%) of the Shares initially covered
by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting
Shares") on each of the first, second, third and fourth anniversaries of the
Purchase Date (each an "Accelerated Vesting Date") as follows:
(A) With respect to each Accelerated Vesting Date, 100% of
the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity
Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending
immediately prior to the applicable Accelerated Vesting Date (such last day of
the fiscal year being referred to as the "Determination Date") equals or exceeds
the Maximum Annual Price Target (described below) for such Determination Date;
(B) With respect to each Accelerated Vesting Date, 0% of the
Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per
Share as of the applicable Determination Date is less than or equal to the
Minimum Annual Price Target (described below) for such Determination Date; and
(C) With respect to each Accelerated Vesting Date, if the
Common Equity Per Share as of the Determination Date is less than the Maximum
Annual Price Target and greater than the Minimum Annual Price Target for such
Determination Date, then the number of Scheduled Accelerated Vesting Shares
which shall vest will equal the product of (x) 100% of the Scheduled Accelerated
Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall
equal the quotient obtained by dividing (A) the excess of the Value of Common
Equity Per Share as of the Determination Date over the Minimum Annual Price
Target for such Determination Date by (B) the excess of the Maximum Annual Price
Target as of the Determination Date over the Minimum Annual Price Target for
such Determination Date.
(ii) In the event that the Option does not vest on an accelerated
basis with respect to all of the Scheduled Accelerated Vesting Shares on an
Accelerated Vesting Date solely as a result of the failure to achieve or exceed
the applicable Maximum Annual Price Target, then the number of Scheduled Vesting
Shares with respect to which the Option did not vest on an accelerated basis
(the "Missed Shares"), will be available for vesting on the next succeeding
Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The
number of Missed Shares, if any, which will vest on an accelerated basis on the
Make-Up Vesting Date will equal the excess, if any, of (x) the number of
Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the
Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of
Scheduled Accelerated Vesting Shares which actually vested on an accelerated
basis on the immediately preceding Accelerated Vesting Date.
<PAGE> 70
3
<TABLE>
<CAPTION>
Determination Minimum Maximum
Vesting Date Date Annual Price Target Annual Price Target
- - ------------ ---- ------------------- -------------------
<S> <C> <C> <C> <C>
1st anniversary of FY Ending
Purchase Date 12/31/99 $10.18 $10.64
2nd anniversary of FY Ending
Purchase Date 12/31/00 $12.21 $13.83
3rd anniversary of FY Ending
Purchase Date 12/31/01 $14.65 $17.98
4th anniversary of FY Ending
Purchase Date 12/31/02 $17.58 $23.37
5th anniversary of FY Ending $21.10 $30.38
Purchase Date 2/31/03
(Used for 4th
anniversary
missed shares only)
</TABLE>
The determination of the Value of Common Equity Per Share for each fiscal
year shall be made by the Board in good faith based upon, and immediately
following receipt of, the audited financial statements for such fiscal year and
will be calculated (after giving effect to the issuance of all Time Options and
all Performance Options which have previously vested or which will vest in such
fiscal year) pursuant to the methodology outlined in Exhibit A.
(c) Termination of Employment
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability (as
each such term is defined in Section 3(a) below), and the Minimum Annual Price
Target for the Determination Date applicable to the next succeeding Accelerated
Vesting Date is exceeded as of such Determination Date, then the Option shall,
upon the Board's determination that the Minimum Annual Price Target for such
Determination Date has been exceeded, become vested with respect to, and the
Vested Portion of the Option shall include a number of Shares (the "Termination
Shares") equal to the sum of:
(i) the product of (A) the number of Scheduled Accelerated Vesting
Shares that would otherwise have vested pursuant to Section 2(b)(i) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) a fraction, the numerator of which is the
number of days that passed since the immediately preceding Accelerated Vesting
Date through and including the date of the Participant's
<PAGE> 71
4
termination of employment and the denominator of which is 365 (the "Termination
Fraction"); plus
(ii) If there were Missed Shares with respect to the immediately
preceding Accelerated Vesting Date, the product of (A) the number of Missed
Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) the Termination Fraction.
(d) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control, the Option shall, to the extent not previously
cancelled, immediately become vested and exercisable with respect to the
Scheduled Accelerated Vesting Shares for any remaining future Accelerated
Vesting Dates, if, and only if, in connection with the Change of Control, Vestar
receives aggregate proceeds, in cash, securities or a combination of cash and
securities, having an aggregate Fair Market Value in an amount equal to or in
excess of the product of (i) Vestar's Aggregate Investment (as defined below)
times (ii) the Minimum Investment Multiple (as defined below) applicable to the
fiscal year of the Company in which such Change of Control occurs; provided
that, securities received by Vestar shall be taken into account for purposes
hereof only if such securities are distributed by Vestar, in kind, to its
limited partners.
For purposes of this Agreement:
"Vestar's Aggregate Investment" shall mean the total amount of capital
invested by Vestar in the Company and its Subsidiaries, including investments
made in connection with the Offer, the Merger contemplated by the Merger
Agreement, or otherwise; and
"Minimum Investment Multiple" shall mean with respect to the Company's
fiscal years ending December 31, 1999 through December 31, 2003 as follows:
<TABLE>
<CAPTION>
FY In Which Change of Control Occurs Minimum Investment Multiple
- - ------------------------------------ ---------------------------
<S> <C> <C>
1999 1.22
2000 1.66
2001 2.12
2002 2.50
2003 3.26
</TABLE>
For purposes of this Section 2(d), "Fair Market Value"shall mean,
solely with respect to securities distributed by Vestar to its limited partners,
the value of such securities as reported by Vestar to such limited partners.
3. Exercise of Option.
<PAGE> 72
5
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability and, with respect to the
Termination Shares, if applicable, 30 days after the determination of the
number of Termination Shares, if later;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason and,
with respect to the Termination Shares, if applicable, 30 days after the
determination of the number of Termination Shares, if later; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in effect as of or after the Date of Grant (as the
same may be amended in accordance with the terms thereof) or if not
defined therein or if there shall be no such agreement, "Cause" shall
exist if a Participant has (i) committed an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against Vestar, Sheridan, the
Company or any Subsidiary or a felony involving the business, assets,
customers or clients of Vestar, Sheridan, the Company or any Subsidiary or
has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material
breach of any written confidentiality, non-compete, non-solicitation or
business opportunity covenant contained in any agreement entered into by
the Participant and Vestar, Sheridan, the Company or any of their
Affiliates; (iii) substantially failed to perform the Participant's duties
to Sheridan, the Company or any Subsidiary, including by committing a
material breach of any written covenant contained in any agreement entered
into by the Participant and Vestar, Sheridan, the Company or any
Subsidiary (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been
remedied within a reasonable time specified by Sheridan (it being
understood that Sheridan can act on behalf of its Affiliates) that is not
less than thirty (30) days after delivery to the Participant by Sheridan
of written notice thereof; or (iv) breached the Participant's obligations
pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse
policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to
<PAGE> 73
6
time, or if there shall be no plan or if not defined therein, the
Participant's becoming physically or mentally incapacitated and consequent
inability for a period of six (6) months in any twelve (12) consecutive
month period to perform the Participant's duties to Sheridan, the Company
or any Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option
may be exercised by delivering to the Company at its principal office written
notice of intent to so exercise; provided that, the Option may be exercised with
respect to whole Shares only. Such notice shall specify the number of Shares for
which the Option is being exercised and shall be accompanied by payment in full
of the Exercise Price. The payment of the Exercise Price shall be made in cash
or, subject to the consent of the Committee, in Shares which have been owned by
the Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this
Agreement to the contrary, the Option may not be exercised prior to the
completion of any registration or qualification of the Option or the Shares that
is required to comply with appliicable state and federal securities or any
ruling or regulation of any governmental body or national securities exchange
that the Committee shall in its sole discretion determine in good faith to be
necessary or advisable.
(iii) Upon the Company's determination that the Option has
been validly exercised as to any of the Shares, the Company shall issue
certificates in the Participant's name for such Shares. However, the Company
shall not be liable to the Participant for damages
<PAGE> 74
7
relating to any delays in issuing the certificates to him, any loss of the
certificates, or any mistakes or errors in the issuance of the certificates or
in the certificates themselves.
(iv) In the event of the Participant's death, the Vested
Portion of the Option shall remain exercisable by a Permitted Transferee, the
Participant's executor or administrator, or the person or persons to whom the
Participant's rights under this Agreement shall pass by will or by the laws of
descent and distribution as the case may be, to the extent set forth in Section
3(a). Any heir or legatee of the Participant shall take rights herein granted
subject to the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant
shall become a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this
Agreement shall be construed as giving the Participant the right to be retained
in the employ of, or in any consulting relationship to, the Company or any
Affiliate. Further, the Company or an Affiliate may at any time dismiss the
Participant or discontinue any consulting relationship, free from any liability
or any claim under the Plan or this Agreement, except as otherwise expressly
provided herein.
5. Legend on Certificates. To the extent provided by the
Stockholders' Agreement, the certificates representing the Shares purchased by
exercise of the Option shall contain a legend stating that they are subject to
the Stockholders' Agreement and may be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause an additional
legend or legends to be put on any such certificates to make appropriate
reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant.
Notwithstanding the foregoing, the Participant may transfer all or
any portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer
<PAGE> 75
8
under an Option or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to
the exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering
into this Agreement the Participant agrees and acknowledges that the Participant
has received and read a copy of the Plan and the Stockholders' Agreement. The
Option is subject to the Plan and the Stockholders' Agreement. The terms and
provisions of the Plan and the Stockholders' Agreement as they may be amended
from time to time in accordance with their respective terms are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan or the
Stockholders' Agreement, the applicable terms and provisions of the Plan or the
Stockholders' Agreement, as applicable, will govern and prevail. In the event of
a conflict between any term or provision of the Plan and any term or provision
of the Stockholders' Agreement, the applicable terms and provisions of the
Stockholders' Agreement will govern and prevail.
<PAGE> 76
9
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
---------------------------
Agreed and acknowledged as of the date first above written:
- - -------------------------
<PAGE> 77
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS
ARE SUBJECT TO ACCELERATED VESTING
STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements
for the year, the Company shall calculate (and the Board of Directors shall
review and approve) EBITDA in good faith pro forma to give effect to all
acquisitions and divestitures completed during the year as if they had occurred
on January 1 of such year.
STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated
in Step 1) by 7.5.
STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value
(calculated in Step 2), deduct year-end balances for Total Debt and Other
Obligations, add year-end balance for Total Cash and add Total Option Proceeds.
For purposes of this calculation, Other Obligations includes any debt-like
instruments such as acquisition-related non-compete, consulting or stock price
guarantee payments as well as non-convertible preferred stock and
out-of-the-money convertible securities. Total Option Proceeds should include
options proceeds related to i) all time-based options (whether or not vested),
ii) all performance-based options that have vested in prior years and iii) all
performance-based options that vest in current year.
STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number
of shares outstanding at the beginning of the year, ii) shares issued in current
year for any reason, including those related to acquisitions, iii) all
time-based options (whether or not vested), iv) all performance-based options
that vest in prior years or in the current year, v) shares associated with
in-the-money convertible preferred stock and vi) shares associated with other
in-the-money common stock equivalents including, but not limited to, warrants
and any other options.
STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common
Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step
4). In Step 6, this number will be compared with the maximum and minimum targets
listed below to determine how many (if any) performance-based options vest in
current year.
STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR.
Multiply the number of options eligible for accelerated vesting in current year
pursuant to the Performance Option Plan by i) if the Value of Common Equity per
Share (Step 5) is greater than or equal to current year's Maximum Annual Price
Target, 100%; ii) if the Value of Common Equity per Share is less than or equal
to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common
Equity per Share is between current year's Minimum and Maximum Annual Price
Targets, the quotient calculated by dividing (A) excess of the Value of Common
Equity per Share over current year's Minimum Annual Price Target by (B) the
excess of current year's Maximum Annual Price Target over current year's Minimum
Annual Price Target.
<TABLE>
<CAPTION>
Minimum Annual Price Maximum Annual Price Target
Year Target
---------- -------------------- -----------------------------
<S> <C> <C>
1999 $10.18 $10.64
2000 12.21 13.83
2001 14.65 17.98
2002 17.58 23.37
2003 21.10 30.38
</TABLE>
<PAGE> 78
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST
PURSUANT TO PERFORMANCE MEASURES
<TABLE>
<CAPTION>
======================================================================
1999 2000 2001 2002 2003
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8
EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5
---------------------------------------------------------------------
Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3
Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6)
Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6
---------------------------------------------------------------------
Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3
Beginning # of Shares 7.317 10.105 10.225 10.346 10.467
Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000
Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000
Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000
Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000
Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000
---------------------------------------------------------------------
Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467
Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24
% appreciation 42.1% 32.9% 42.0% 34.3% 27.7%
ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38
% APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0%
ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10
% APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
</TABLE>
(a) Represents full year EBITDA adjusted to give effect to all current year
acquisitions and divestitures as if they occurred on January 1.
(b) For purposes of calculating Total Enterprise Value at the end of any year,
the EBITDA multiple shall be 7.5x.
(c) Other Obligations include any debt-like instruments such as
acquisition-related noncompete, consulting or stock price guarantee payments
as well as non-convertible preferred stock and out-of-the-money convertible
securities.
(d) Option proceeds assume exercise of all vested in-the-money options,
including those options available for current year vesting. In this example,
assumes all options have exercise price of $9.25.
(e) For purposes of calculating value of common equity per share on this
schedule, all time-based options are deemed vested and exercised.
(f) 483,333 performance options are available for grant. At Closing, 333,333 of
such options will be granted to existing members of management. The
remaining 150,000 options will be reserved for future grant. This example
assumes that all 483,333 are granted.
(g) Assumes a June 30, 1999 closing. If calculated value of common equity per
share exceeds the maximum annual share price target for that year, then 100%
of eligible options will vest (0.121 million in this example).
(h) Assumes a June 30, 1999 closing. If calculated value of common equity per
share is below the minimum annual share price target for that year, then 0%
of eligible options will vest (0.000 million in this example).
<PAGE> 79
Exhibit D
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
TIME OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - --------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 80
2
(a) Time Vesting.
Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest
and become exercisable with respect to twenty percent (20%) of the Shares
initially covered by the Option on each of the first, second, third, fourth and
fifth anniversaries (each such anniversary being a "Vesting Date") of the
purchase of shares of common stock of Sheridan pursuant to the Offer.
(b) Termination of Employment.
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability, the
Option shall, as of the date of such termination, become vested with respect to,
and the Vested Portion of the Option shall include, that portion of the Option
which would otherwise have vested on the next Vesting Date.
(c) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control the Option shall, to the extent not then vested
and not previously canceled, immediately become fully vested and exercisable.
3. Exercise of Option.
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in
<PAGE> 81
3
effect as of or after the Date of Grant (as the same may be amended in
accordance with the terms thereof) or if not defined therein or if there
shall be no such agreement, "Cause" shall exist if a Participant has (i)
committed an act of fraud, embezzlement, misappropriation or breach of
fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or
a felony involving the business, assets, customers or clients of Vestar,
Sheridan, the Company or any Subsidiary or has been convicted by a court
of competent jurisdiction or has plead guilty or nolo contendere to any
other felony; (ii) committed a material breach of any written
confidentiality, non-compete, non-solicitation or business opportunity
covenant contained in any agreement entered into by the Participant and
Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Participant's duties to Sheridan, the
Company or any Subsidiary, including by committing a material breach of
any written covenant contained in any agreement entered into by the
Participant and Vestar, Sheridan, the Company or any Subsidiary (other
than a confidentiality, non-compete, non-solicitation or business
opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty
(30) days after delivery to the Participant by Sheridan of written notice
thereof; or (iv) breached the Participant's obligations pursuant to
Sheridan's, the Company's or any Subsidiary's substance abuse policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to time, or
if there shall be no plan or if not defined therein, the Participant's
becoming physically or mentally incapacitated and consequent inability for
a period of six (6) months in any twelve (12) consecutive month period to
perform the Participant's duties to Sheridan, the Company or any
Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
<PAGE> 82
4
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option may be
exercised by delivering to the Company at its principal office written notice of
intent to so exercise; provided that, the Option may be exercised with respect
to whole Shares only. Such notice shall specify the number of Shares for which
the Option is being exercised and shall be accompanied by payment in full of the
Exercise Price. The payment of the Exercise Price shall be made in cash or,
subject to the consent of the Committee, in Shares which have been owned by the
Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this Agreement to
the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares that is required to
comply with applicable state and federal securities or any ruling or regulation
of any governmental body or national securities exchange that the Committee
shall in its sole discretion determine in good faith to be necessary or
advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss of the certificates, or any mistakes or errors in the issuance
of the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested Portion of the
Option shall remain exercisable by a Permitted Transferee, the Participant's
executor or administrator, or the person or persons to whom the Participant's
rights under this Agreement shall pass by will or by the laws of descent and
distribution as the case may be, to the extent set forth in Section 3(a). Any
heir or legatee of the Participant shall take rights herein granted subject to
the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant shall become
a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this Agreement
shall be construed as giving the Participant the right to be retained in the
employ of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an Affiliate may at any time dismiss the Participant or
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.
5. Legend on Certificates. To the extent provided by the Stockholders'
Agreement, the certificates representing the Shares purchased by exercise of the
Option shall
<PAGE> 83
5
contain a legend stating that they are subject to the Stockholders' Agreement
and may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which such Shares are listed, and any applicable Federal or state laws, and the
Committee may cause an additional legend or legends to be put on any such
certificates to make appropriate reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant
Notwithstanding the foregoing, the Participant may transfer all or any
portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate, and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer under an Option or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be addressed
to the Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering into
this Agreement the Participant agrees and acknowledges that the Participant has
received and read a copy of the Plan and the Stockholders' Agreement. The Option
is subject to the Plan and the
<PAGE> 84
6
Stockholders' Agreement. The terms and provisions of the Plan and the
Stockholders' Agreement as they may be amended from time to time in accordance
with their respective terms are hereby incorporated herein by reference. In the
event of a conflict between any term or provision contained herein and a term or
provision of the Plan or the Stockholders' Agreement, the applicable terms and
provisions of the Plan or the Stockholders' Agreement, as applicable, will
govern and prevail. In the event of a conflict between any term or provision of
the Plan and any term or provision of the Stockholders' Agreement, the
applicable terms and provisions of the Stockholders' Agreement will govern and
prevail.
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
------------------------------
Agreed and acknowledged as of the date
first above written:
- - ------------------------------
<PAGE> 1
SUBSCRIPTION AND TENDER AGREEMENT
SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999
(this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware
corporation (the "Company"), and the individual named on the signature page
hereto (the "Stockholder").
WHEREAS, concurrently herewith, the Company, Vestar/Calvary,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation
("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the
date hereof (the "Merger Agreement") pursuant to which, among other things,
Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $.01 per share, and Class A Common
Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common
Stock") and (y) to merge (the "Merger") into Sheridan;
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and make the Offer, the Company and Acquisition have required
the Stockholder and certain other Management Investors referred to below to
enter into this Agreement and the other Stockholder Documents referred to in the
Merger Agreement;
WHEREAS, the Stockholder has agreed, among other things, to
tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan
Common Stock owned by him as of the date hereof and all shares of Sheridan
Common Stock, if any, acquired by him after the date hereof and prior to the
expiration of the Offer (the "Tender Shares");
WHEREAS, on the terms and subject to the conditions hereof,
the Stockholder desires to subscribe for and acquire from the Company, and the
Company desires to issue and sell to the Stockholder, the number of shares of
common stock, par value $.01 per share, of the Company ("Common Stock") set
forth on Schedule I hereto, as hereinafter set forth;
WHEREAS, this Agreement is one of several agreements being
entered into by the Company on or after the date hereof with certain persons who
are or will be key employees of the Company or one of its subsidiaries
(collectively with the Stockholder, the "Management Investors");
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Subscription for and Purchase of Common Stock.
1.1. Purchase of Common Stock. Pursuant to the terms and
subject to the conditions set forth in this Agreement, the Stockholder hereby
subscribes for and agrees to purchase, and the Company hereby agrees to issue
and sell to the Stockholder, on the Closing
<PAGE> 2
2
Date (as defined in Section 1.3) the number of shares of Common Stock set forth
on Schedule I hereto at a price per share and for the aggregate amount in cash
(the "Purchase Price") set forth on Schedule I hereto.
1.2. Sales of Common Stock to Employees Only. Notwithstanding
anything in this Agreement to the contrary, the Company shall have no obligation
to issue, sell or deliver any shares of Common Stock to any person (i) who is
not a full-time employee of, or consultant to, the Company or any of its
subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in
which such issuance, sale or delivery to such person would constitute a
violation of the securities or "blue sky" laws of such jurisdiction.
1.3. The Closing. The closing (the "Closing") of the purchase
of Common Stock hereunder shall take place on the date (the "Closing Date") that
Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and
at such time as the Company shall direct on at least one business day's prior
notice to the Stockholder. The Closing shall occur at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such
other place as the parties may mutually agree. At the Closing, the Stockholder
(or the Stockholder's representative) shall deliver to the Company the Purchase
Price, payable by delivery of the amount set forth on Schedule I hereto, by
delivery of a certified check or by wire transfer in immediately available
funds.
1.4. Conditions to the Obligations of the Parties. (a) The
obligations of the Company under this Section 1 shall be subject to the
conditions that (i) the Stockholder shall have executed and delivered the
Stockholders Agreement dated as of the date hereof among the Company and its
stockholders party thereto in substantially the form attached hereto as Exhibit
A (the "Stockholders Agreement"), (ii) the representations and warranties of the
Stockholder in Section 2 of this Agreement shall be true and correct as of the
Closing Date in all material respects and (iii) the Stockholder shall not have
breached his obligations under Section 3 hereof.
(b) The obligations of the Stockholder under this Section 1
shall be subject to the conditions that (i) the Company shall have executed and
delivered the Stockholders Agreement and (ii) the representations and warranties
of the Company in Section 1.5 of this Agreement shall be true and correct as of
the Closing Date in all material respects.
1.5. Representations and Warranties of the Company. The
Company represents and warrants to the Stockholder as follows:
(a) the Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to execute and deliver this Agreement and the
Stockholders Agreement and to perform its obligations hereunder and thereunder.
The execution, delivery and performance by the Company of this Agreement and the
Stockholders Agreement has been duly authorized by all necessary corporate and
legal action by the Company, and no other corporate proceeding by the Company is
necessary for the execution, delivery and performance by the Company of this
Agreement or the Stockholders Agreement. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Company and, assuming
they are duly executed and delivered by the Stockholder,
<PAGE> 3
3
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
(b) the Common Stock to be issued to the Stockholder pursuant
to this Agreement, when issued and delivered in accordance with the terms
hereof, will be duly and validly issued and, upon receipt by the Company of the
Purchase Price therefor, will be fully paid and nonassessable with no personal
liability attached to the ownership thereof and will not be subject to any
preemptive rights under the Delaware General Corporation Law; and
(c) the execution, delivery and performance by the Company of
this Agreement and the Stockholders Agreement will not (i) conflict with the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or (iii) conflict with or violate any law, rule,
regulation, ordinance, writ, injunction, judgment or decree applicable to the
Company or any of its subsidiaries or by which any of their assets may be bound
or affected.
2. Representations, Warranties and Covenants of the Stockholder.
2.1. Residence and Competency; Power; Enforceability;
Noncontravention. The Stockholder is competent to and has sufficient capacity to
execute and deliver this Agreement and the Stockholders Agreement and to perform
his obligations hereunder and thereunder. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Stockholder.
Assuming the due execution and delivery of this Agreement and
the Stockholders Agreement by the Company, this Agreement and the Stockholders
Agreement constitute valid and binding obligations of the Stockholder,
enforceable against the Stockholder in accordance with their terms.
The execution, delivery and performance of this Agreement and
the Stockholders Agreement by the Stockholder will not (i) conflict with or
violate any law, rule, regulation, ordinance, writ, injunction, judgment or
decree applicable to the Stockholder or by which any of his assets may be bound
or affected or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Stockholder is a party or by which the Stockholder is bound.
2.2. Investment Intention; No Resales. The Stockholder hereby
represents and warrants that he is acquiring the Common Stock for investment
solely for his own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof. The Stockholder agrees and
acknowledges that he will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock,
or solicit any offers to purchase or otherwise acquire or pledge any shares of
Common Stock, unless such offer, transfer, sale, assignment, pledge,
hypothecation or other disposition complies with the provisions hereof and of
the Stockholders Agreement.
<PAGE> 4
4
2.3. Common Stock Unregistered. The Stockholder acknowledges
and represents that he has been advised by the Company that:
(a) the offer and sale of the Common Stock have not been and
will not be registered under the Securities Act;
(b) the Common Stock must be held indefinitely and the
Stockholder must continue to bear the economic risk of the investment in the
Common Stock unless the offer and sale of such Common Stock is subsequently
registered under the Securities Act and all applicable state securities laws or
an exemption from such registration is available;
(c) there is no established market for the Common Stock and it
is not anticipated that there will be any public market for the Common Stock in
the foreseeable future;
(d) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities of the Company,
and, except as set forth in the Stockholders Agreement, the Company has made no
covenant to make such Rule available;
(e) when and if shares of Common Stock may be disposed of
without registration under the Securities Act in reliance on Rule 144, such
disposition can be made only in limited amounts in accordance with the terms and
conditions of such Rule;
(f) if the Rule 144 exemption is not available, public offer
or sale of Common Stock without registration will require compliance with some
other exemption under the Securities Act;
(g) if any shares of Common Stock are at any time disposed of
in accordance with Rule 144, the Stockholder will deliver to the Company at or
prior to the time of such disposition an executed Form 144 (if required by Rule
144) and such other documentation as the Company may reasonably require in
connection with such sale;
(h) a restrictive legend in the form set forth in the
Stockholders Agreement shall be placed on the certificates representing Common
Stock; and
(i) a notation shall be made in the appropriate records of the
Company indicating that the Common Stock is subject to restrictions on transfer
and, if the Company should at some time in the future engage the services of a
securities transfer agent, appropriate stop-transfer instructions will be issued
to such transfer agent with respect to the Common Stock.
2.4. Additional Investment Representations. The Stockholder
represents and warrants that:
(a) the Stockholder's financial situation is such that he can
afford to bear the economic risk of holding the Common Stock for an indefinite
period of time, has adequate means for providing for his current needs and
personal contingencies, and can afford to suffer a complete loss of his
investment in the Common Stock;
<PAGE> 5
5
(b) the Stockholder's knowledge and experience in financial
and business matters are such that he is capable of evaluating the merits and
risks of the investment in the Common Stock, as contemplated by this Agreement;
(c) the Stockholder understands that the Common Stock is a
speculative investment which involves a high degree of risk of loss of his
investment therein, there are substantial restrictions on the transferability of
the Common Stock and, on the Closing Date and for an indefinite period following
the Closing, there will be no public market for the Common Stock and,
accordingly, it may not be possible for the Stockholder to liquidate his
investment in case of emergency, if at all;
(d) the terms of the Stockholders Agreement provide that in
the event that the Stockholder ceases to be an employee of Sheridan, the
Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their
designated affiliates have the right to repurchase the Common Stock at a price
which may, in certain circumstances, be less than the fair market value of such
stock;
(e) the Stockholder understands and has taken cognizance of
all the risk factors related to the purchase of Common Stock and, other than as
set forth in this Agreement, no representations or warranties have been made to
the Stockholder or his representatives concerning the Common Stock or the
Company, its subsidiaries or their prospects or other matters;
(f) in making his decision to purchase the Common Stock hereby
subscribed for, the Stockholder has relied upon independent investigations made
by him and, to the extent believed by the Stockholder to be appropriate, his
representatives, including his own professional, financial, tax and other
advisors;
(g) the Stockholder has been given the opportunity to examine
all documents and to ask questions of, and to receive answers from, the Company
and its representatives concerning the Company and its subsidiaries and the
terms and conditions of the purchase of the Common Stock and to obtain any
additional information, in each case as the Stockholder or his representatives
deems necessary;
(h) all information which the Stockholder has provided to the
Company and its representatives concerning the Stockholder and his financial
position is complete and correct as of the date of this Agreement; and
(i) the Stockholder is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act.
3. Agreements Relating to Tender Shares.
3.1. Agreement to Tender. The Stockholder hereby agrees to
validly tender pursuant to the Offer and not withdraw from the Offer all Tender
Shares; provided that the Merger Agreement has not been terminated.
3.2. Voting of Tender Shares. The Stockholder hereby agrees,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, to vote all Tender
<PAGE> 6
6
Shares (a) in favor of the adoption of the Merger Agreement and the approval of
the transactions contemplated thereby and (b) against any action or agreement
that would result in a breach of any representation, warranty, covenant or
agreement of the Company contained in the Merger Agreement or would impede,
interfere with, delay or prevent the consummation of the Merger or the purchase
of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall
not, so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, purport to vote (or execute a written consent with respect
to) Tender Shares other than in accordance with this Agreement or grant any
proxy or power of attorney with respect to Tender Shares, deposit any Tender
Shares into a voting trust, or enter into any agreement, arrangement or
understanding with any person (other than this Agreement), directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of Tender Shares, or agree to do any of the foregoing.
3.3. Disposition of Tender Shares. The Stockholder shall not,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise
encumber, any Tender Shares after the date hereof (except to tender Tender
Shares to Acquisition pursuant to the Offer), or agree to do any of the
foregoing.
3.4. Stop Transfer Order. The Stockholder hereby agrees to
cause Sheridan's transfer agent to be notified that there is a stop transfer
order (except to tender Tender Shares to Acquisition pursuant to the Offer) with
respect to all Tender Shares so long as the Stockholder is required to tender
Tender Shares pursuant to Section 3.1 hereof.
4. Options.
4.1. Adoption of Option Plan. Immediately following the
Effective Time (as defined in the Merger Agreement), the Company shall duly
adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially
the form attached hereto as Exhibit B.
4.2. Grant of Performance Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Performance Option Agreement in substantially the form attached hereto as
Exhibit C pursuant to which the Stockholder will be granted performance options
to purchase the number of shares of Common Stock set forth opposite his name on
Schedule II hereto at an exercise price equal to the per share price paid by the
Stockholder for Common Stock pursuant hereto. Following such due execution and
delivery thereof, the Performance Option Agreement shall constitute a valid and
binding obligation of each of the Company and the Stockholder, enforceable
against each of the Company and the Stockholder in accordance with its terms.
4.3. Grant of Time Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Time Option Agreement in substantially the form attached hereto as Exhibit D
pursuant to which the Stockholder will be granted time options to purchase the
number of shares of Common Stock set forth opposite his name on Schedule II
hereto at an exercise price equal to the per share price paid by the Stockholder
for Common Stock pursuant hereto. Following such due execution and delivery
thereof, the Time Option Agreement shall constitute a valid and binding
obligation of each of the Company and the Stockholder, enforceable against each
of the Company and the Stockholder in accordance with its terms.
<PAGE> 7
7
5. Miscellaneous.
5.1. Recapitalizations, Exchanges, Etc., Affecting Common
Stock. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to Common Stock, to any and all shares of capital
stock of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution for Common Stock, by reason of
any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Upon the occurrence of any of such events, amounts hereunder shall be
appropriately adjusted, in good faith, by the Board of Directors of the Company.
5.2. Stockholder's Employment by the Company. Nothing
contained in this Agreement shall be deemed to obligate the Company or any
subsidiary of the Company to employ the Stockholder in any capacity whatsoever
or to prohibit or restrict the Company (or any such subsidiary) from terminating
the employment, if any, of the Stockholder at any time or for any reason
whatsoever, with or without Cause (as defined in the Stockholders Agreement).
5.3. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. No assignment of any of
the rights or obligations of the Stockholder shall be permitted except as
expressly contemplated hereby; any purported assignment in violation of this
provision shall be null and void ab initio.
5.4. Amendment; Waiver. This Agreement may be amended only by
a written instrument signed by the parties hereto. No waiver by either party
hereto of any of the provisions hereof shall be effective unless set forth in a
writing executed by the party so waiving.
5.5. Governing Law. This Agreement shall be governed by and
construed in all respects under the laws of the State of New York. Any action to
enforce which arises out of or in any way relates to any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located
within the State of New York as provided by law; and the parties consent to the
jurisdiction of such court or courts located within the State of New York and to
service of process by registered mail, return receipt requested, or by any other
manner provided by New York law.
5.6. Notices. Any notices or communications permitted or
required hereunder shall be deemed sufficiently given if hand-delivered, or sent
by (x) registered or certified mail return receipt requested, (y) telecopy or
other electronic transmission service (to the extent receipt is confirmed) or
(z) by overnight courier, in each case to the parties at their respective
addresses and telecopy numbers set forth below, or to such other address of
which any party may notify the other party in writing.
<PAGE> 8
8
(a) If to the Company, to it at the following address:
Vestar/Calvary Holdings, Inc.
c/o Vestar Capital Partners
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Telecopy: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Telecopy: (212) 455-2502
(b) If to the Stockholder, to him at his address or telecopy
number as shown on the stock register of the Company.
5.7. Integration. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
5.8. Counterparts. This Agreement may be executed in two or
more counterparts, and by different parties on separate counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
5.9. Injunctive Relief. The Stockholder, on behalf of himself
and his permitted transferees, and the Company, on its own behalf and on behalf
of its successors and assigns, each acknowledges and agrees that a violation of
any of the terms of this Agreement will cause the other irreparable injury for
which adequate remedy at law is not available. Accordingly, it is agreed that
the Company or the Stockholder, as the case may be, shall be entitled to an
injunction, restraining order or other equitable relief to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which it or he may be
entitled at law or equity.
5.10. Rights to Negotiate. Nothing in this Agreement shall be
deemed to restrict or prohibit the Company from purchasing shares of Common
Stock from the Stockholder at any time upon such terms and conditions and at
such price as may be mutually agreed upon between the Company and the
Stockholder, whether or not at the time of such purchase circumstances exist
<PAGE> 9
9
which specifically grant the Company the right to purchase, or the Stockholder
the right to sell, shares of Common Stock pursuant to the terms of this
Agreement or the Stockholders Agreement.
5.11. Rights Cumulative; Waiver. The rights and remedies of
the Stockholder and the Company under this Agreement shall be cumulative and not
exclusive of any rights or remedies which either would otherwise have hereunder
or at law or in equity or by statute, and no failure or delay by either party in
exercising any right or remedy shall impair any such right or remedy or operate
as a waiver of such right or remedy, nor shall any single or partial exercise of
any power or right preclude such party's other or further exercise or the
exercise of any other power or right. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ James L. Elrod, Jr.
----------------------------------------
Name: James L. Elrod, Jr.
Title: President
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
STOCKHOLDER:
/s/ Michael F. Schundler
-------------------------------------
Michael F. Schundler
<PAGE> 12
MICHAEL F. SCHUNDLER
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares Purchase Price Aggregate Purchase
of Common Stock Per Share Price Payable
- - --------------- --------- -------------
<S> <C> <C>
40,000** Per share price paid by Acquisition $ 370,000
for Sheridan Common Stock
pursuant to the Offer
</TABLE>
** Assuming a purchase price per share of $9.25.
<PAGE> 13
MICHAEL F. SCHUNDLER
SCHEDULE II
<TABLE>
<CAPTION>
Number of Shares Subject Number of Shares Subject
to Time Options to Performance Options
- - --------------- ----------------------
<S> <C>
66,666 33,334
</TABLE>
<PAGE> 14
Exhibit (c) (2)
EXECUTION COPY
================================================================================
STOCKHOLDERS AGREEMENT
dated as of March 24, 1999
among
VESTAR/CALVARY HOLDINGS, INC.,
SHERIDAN HEALTHCARE, INC.,
VESTAR/CALVARY INVESTORS, LLC,
MITCHELL EISENBERG,
LEWIS D. GOLD,
MICHAEL F. SCHUNDLER,
JAY A. MARTUS
and
THE OTHER MANAGEMENT INVESTORS
================================================================================
<PAGE> 15
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.......................................................1
1.1 Defined Terms.....................................................1
1.2 Other Definitional Provisions; Interpretation....................10
SECTION 2. VOTING AGREEMENTS................................................11
2.1 Election of Directors............................................11
2.2 Other Voting Matters.............................................12
SECTION 3. TRANSFERS AND ISSUANCES..........................................12
3.1 Transfers to be Made Only as Permitted or
Required by this Agreement ......................................12
3.2 Permitted Transfers..............................................13
3.3 Effect of Void Transfers.........................................13
3.4 Legend on Securities.............................................13
3.5 Tag-Along Rights.................................................14
3.6 Public Offerings, etc. ..........................................15
3.7 Drag-Along Rights................................................16
3.8 Rights of First Refusal..........................................16
3.9 Participation Right..............................................18
3.10 Partial Transfers Following a Qualified Public Offering..........19
3.11 Partial Transfers to Cover Option-Related Tax Payments...........19
3.12 Transfers to Other Management Investors. .......................20
3.13 Call Right.......................................................20
3.14 Put Right........................................................22
SECTION 4. REGISTRATION RIGHTS..............................................24
4.1 Demand Registration..............................................24
4.2 Incidental Registration..........................................25
4.3 Registration Procedures..........................................27
4.4 Underwritten Offerings...........................................30
4.5 Preparation; Reasonable Investigation............................31
4.6 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants.....................................31
4.7 Expenses.........................................................32
4.8 Indemnification..................................................33
4.9 Participation in Underwritten Registrations......................34
4.10 Rule 144.........................................................35
4.11 Holdback Agreements..............................................35
4.12 Mezzanine Securities.............................................35
SECTION 5. MISCELLANEOUS....................................................36
5.1 Additional Securities Subject to Agreement.......................36
-i-
<PAGE> 16
5.2 Termination......................................................36
5.3 Injunctive Relief................................................36
5.4 Other Stockholders' Agreements...................................36
5.5 Amendments.......................................................36
5.6 Successors, Assigns and Transferees..............................36
5.7 Notices..........................................................36
5.8 Integration......................................................37
5.9 Severability.....................................................37
5.10 Counterparts.....................................................37
5.11 Governing Law....................................................38
5.12 Jurisdiction.....................................................38
5.13 Management Investors.............................................38
5.14 83(b) Election...................................................38
5.15 Management Investor Representative...............................38
5.16 Covenant Not to Compete..........................................39
5.17 Business Opportunities...........................................39
5.18 Confidentiality..................................................40
5.19 Effectiveness....................................................40
SCHEDULE 1 - Initial Other Management Investors
-ii-
<PAGE> 17
STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among
Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan
Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors,
LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis
D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior
Management Investors") and the other persons listed on Schedule 1 hereto
(collectively, together with the persons identified in the supplementary
agreements referred to in Section 5.13 hereof, the "Other Management
Investors"). The Senior Management Investors and the Other Management Investors
are collectively referred to herein as the "Management Investors".
W I T N E S S E T H :
WHEREAS, the Company, the Senior Management Investors and the Other
Management Investors listed on Schedule 1 hereto have entered into subscription
and tender agreements dated as of the date hereof (the "Subscription and Tender
Agreements");
WHEREAS, pursuant to the Subscription and Tender Agreements and on
the terms and subject to the conditions set forth therein, the Senior Management
Investors and the Other Management Investors listed on Schedule 1 hereto have
agreed to purchase shares of common stock of the Company;
WHEREAS, the Company, Sheridan, Vestar and the Management Investors
desire to make certain arrangements among themselves with respect to matters set
forth herein; and
WHEREAS, it is a condition to the consummation of the closings under
the Subscription and Tender Agreements that this Agreement (as defined below)
shall have been duly authorized, executed and delivered by each of the parties
hereto and be in full force and effect;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, terms defined in the
headings and the recitals shall have their respective assigned meanings, and the
following capitalized terms shall have the meanings ascribed to them below:
"Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company.
"Affiliate" means, with respect to any Person, (i) any Person that
directly or indirectly controls, is controlled by or is under common control
with, such Person, or (ii) any director, officer, partner or employee of such
Person or any Person specified in clause (i) above, or
(iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or
sibling of any Person specified in clause (i) or (ii) above.
<PAGE> 18
2
"Aggregate Investment" shall have the meaning ascribed to such term
in the definition of "Lapse Date."
"Agreement" means this Stockholders Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Applicable Percentage" shall mean (i) for the period from the
Closing Date through the day immediately preceding the first anniversary of the
Closing Date, 0%, (ii) for the period from the first anniversary of the Closing
Date through the date immediately preceding the second anniversary of the
Closing Date, 25%, (iii) for the period from the second anniversary of the
Closing Date through the day immediately preceding the third anniversary of the
Closing Date, 50%, (iv) for the period from the third anniversary of the Closing
Date through the day immediately preceding the fourth anniversary of the Closing
Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%.
"Business Day" means a day other than a Saturday, Sunday, holiday or
other day on which commercial banks in New York City or Miami, Florida are
authorized or required by law to close.
"Call Notice" shall have the meaning ascribed to such term in
Section 3.13(a).
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Management Investor and the Company or any of
its Subsidiaries which is in effect as of or after the Closing Date (as the same
may be amended in accordance with the terms thereof) or, if not defined therein
or if there shall be no such agreement, "Cause" shall exist if a Management
Investor has (i) committed an act of fraud, embezzlement, misappropriation or
breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary
of the Company or Sheridan or a felony involving the business, assets, customers
or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan or has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material breach
of any written confidentiality, non-compete, non-solicitation or business
opportunity covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Management Investor's duties to Sheridan,
the Company or any Subsidiary, including by committing a material breach of any
written covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty (30)
days after delivery to the Management Investor by Sheridan of written notice
thereof; or (iv) breached the Management Investor's obligations pursuant to
Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's
substance abuse policy.
"Closing Date" shall have the meaning ascribed to such term in the
Subscription and Tender Agreements.
<PAGE> 19
3
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute. Any reference herein to a particular
provision of the Code shall mean, where appropriate, the corresponding provision
in any successor statute.
"Columbia" means the hospitals and ambulatory surgical facilities
owned by Columbia/HCA Healthcare, Inc.
"Common Stock" means the common stock of the Company or common
equity securities, or securities exchangeable or exercisable for or convertible
into common equity securities, of any Person into or for which Common Stock is
converted, exchanged or received in an Exit Transaction.
"Common Stock Equivalents" means any stock, warrants, rights, calls,
options or other securities exchangeable or exercisable for or convertible into
Common Stock.
"Company" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include any Person who, in connection
with an Exit Transaction, becomes the issuer of Common Stock.
"Competitive Enterprise" means any Person the activities, products
or services of which (A) are competitive with activities, products or services
of the Company or any of its Controlled Entities (as defined in the Merger
Agreement) in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Management Investor's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services, including without
limitation, the provision of anesthesia services, pain management services,
emergency room services, primary medical care services, neonatology,
perinatology and radiology services; (2) the provision of Payor Services; (3)
the provision of administrative services for medical services and Payor
Services, including without limitation, quality assurance services, utilization
management services, billing services, recruitment services and medical
management information services; or (4) the provision of services or products of
any nature to Columbia.
"Confidential Information" shall have the meaning ascribed to such
term in Section 5.18(a).
"Cost" means the purchase price per share of Common Stock paid by
the applicable Management Investor determined by dividing (x) the total purchase
price paid by such Management Investor on the date of purchase of such share by
(y) the number of shares of Common Stock purchased by such Management Investor
on such date, as adjusted by the Board of Directors of the Company in good faith
and on a consistent basis to reflect Exit Transactions and stock splits, stock
dividends, recapitalizations and other similar transactions.
"Cost Securities" shall have the meaning ascribed to such term in
Section 3.13(f).
"Custody Agreement and Power of Attorney" shall have the meaning
ascribed to such term in Section 4.2(c)
<PAGE> 20
4
"DGCL" shall have the meaning ascribed to such term in Section 5.11.
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Management Investor and the Company or
any of its Subsidiaries which is in effect as of or after the Closing Date (as
the same may be amended in accordance with the terms thereof) or, if not defined
therein or if there shall be no such agreement, as defined in Sheridan's
long-term disability plan as in effect from time to time or if, there shall be
no plan or if not defined therein, the Management Investor's becoming physically
or mentally incapacitated and consequent inability for a period of six (6)
months in any twelve (12) consecutive month period to perform the Management
Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the
Company.
"Effective Time" shall have the meaning ascribed to such term in the
Merger Agreement.
"Exit Transaction" shall have the meaning ascribed to such term in
the definition of "Lapse Date."
"Equity Interests" shall have the meaning ascribed to such term in
Section 3.9(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
"Fair Market Value" shall mean, as of any date of determination,
with respect to shares of Common Stock, (x) prior to a Qualified Public
Offering, the fair market value of the shares, disregarding any discount for
minority interest, restrictions on transfer of the shares or lack of
marketability of the shares, as determined in good faith and on a consistent
basis by the Board of Directors of the Company, giving due consideration to,
among other things, the earnings and other financial and operating information
of the Company, Sheridan and its Subsidiaries in recent periods, the future
prospects of the Company, Sheridan and its Subsidiaries, the general condition
of the securities markets and the fair market value of securities of companies
of a similar size and engaged in businesses similar to the business of the
Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public
Offering, the price per share of Common Stock equal to the average of the last
sales price of a share of Common Stock on each of the last five trading days
prior to the date of determination (the "FMV Calculation Period") on each
exchange on which the Common Stock may at the time be listed or, if there shall
have been no sales on any of such exchanges during the FMV Calculation Period,
the average of the closing bid and asked prices on each such exchange on each
day during the FMV Calculation Period or, if there are no such bid and asked
prices during the FMV Calculation Period, on the next preceding five dates on
which such bid and asked prices occurred or, if Common Stock shall not be so
listed, the average of the closing sales prices as reported by NASDAQ during the
FMV Calculation Period in the over-the-counter market.
"Family Group" shall have the meaning ascribed to such term in
Section 3.2(a).
<PAGE> 21
5
"Financing Default" shall mean an event which constitutes (or which
with notice or lapse of time or both would constitute) an event of default
(which event of default has not been cured or waived) under any of the following
as originally entered into or as they may be amended from time to time: (i) any
agreement or instrument under which indebtedness of any of the Company and its
Subsidiaries is outstanding as of the time of the aforementioned event, and any
extensions, renewals, refinancings or refundings thereof in whole or in part;
(ii) any provision of the Company's or any of its Subsidiaries' certificates of
incorporation or other organizational documents as in effect on the date hereof;
(iii) any amendment of, supplement to or other modification of any of the
instruments referred to in clauses (i) or (ii) above; and (iv) any of the
securities issued pursuant to or whose terms are governed by the terms of any of
the agreements set forth in clauses (i) and (ii) above, and any extensions,
renewals, refinancings or refundings thereof in whole or in part.
"FMV Calculation Period" shall have the meaning ascribed to such
term in the defined term "Fair Market Value".
"Good Reason" shall mean, if the Management Investor has entered
into an employment agreement with Sheridan, the Company or any of its
Subsidiaries which is in effect as of or after the Closing Date (as the same may
be amended in accordance with the terms hereof) the occurrence of such events
which, under the terms of such employment agreement, would expressly enable the
Management Investor to resign from employment and be treated under such
employment agreement as though the Management Investor's employment had been
terminated by the Company without "cause" or, if the employment agreement does
not include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of
Sheridan or the Company has failed to pay the Management Investor his salary;
(ii) the office where the Management Investor performs his duties is moved more
than 30 miles from where the Management Investor performed the Management
Investor's duties on the Closing Date; (iii) a substantial reduction of the
Management Investor's base salary (other than an across the board reduction
similarly affecting other comparable employees of Sheridan, the Company or its
Subsidiaries) or a substantial diminution of the Management Investor's duties,
which, in each case, has not been remedied within a reasonable time specified by
the Management Investor that is not less than thirty (30) days after delivery to
Sheridan of written notice describing the event constituting Good Reason.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Health Care Provider" means any physician, nurse, technician or
allied health care provider providing medical services on behalf of Sheridan or
any of its Affiliates on a full or part-time basis as an independent contractor
or consultant.
"Initial Call Period" shall have the meaning ascribed to such term
in Section 3.13(f).
<PAGE> 22
6
"Initial Public Offering" means the first Public Offering occurring
after the date hereof.
"Issuance" shall have the meaning ascribed to such term in Section
3.9(a).
"Junior Subordinated Note" shall have the meaning ascribed to such
term in Section 3.13(g).
"Lapse Date" means the earlier of (x) the fifth anniversary of the
Closing Date and (y) the date of the sale, exchange or other disposition by
Vestar and its Affiliates, in one or a series of transactions (including,
without limitation, by way of merger, reorganization, recapitalization,
consolidation, sale of capital stock or assets of Sheridan or any other
Subsidiary of the Company, or similar transaction that results in the
disposition, directly or indirectly, of the equity interests of Vestar and its
Affiliates (other than the Management Investors) in the Company) (collectively,
an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in
the Company immediately following the Closing Date plus (2) any additional
capital contributions to, or investments in, the Company made by any of Vestar
and its Affiliates after the Closing Date (clauses (1) and (2), collectively,
the "Aggregate Investment"); provided that, in the case of clause (y), either
(A) the consideration received by Vestar and its Affiliates in the Exit
Transaction for 70% or more of the Aggregate Investment is cash or securities
that are distributed in kind to the limited partners of Vestar Capital Partners
III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction
results in (i) designees of Vestar and its Affiliates not constituting a
majority of the Board of Directors (or analogous governing body) of the Company
and (ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding securities of the Company entitled to vote generally in the election
of directors (or members of an analogous governing body) of the Company.
"Majority Selling Stockholders" shall have the meaning ascribed to
such term in Section 4.7.
"Management Investors" shall have the meaning ascribed to such term
in the preamble to this Agreement.
"Management Investor Offeree" shall have the meaning ascribed to
such term in Section 3.8(a).
"Manager Investor Representative" shall have the meaning ascribed to
such term in Section 5.15.
"Management Investor's Transfer Group" shall have the meaning
ascribed to such term in Section 3.8(a).
"Measurement Date" shall have the meaning ascribed to such term in
Section 3.10.
<PAGE> 23
7
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs, PHOs,
MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals,
clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid
intermediaries.
"Merger" shall have the meaning ascribed to such term in the Merger
Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated as
of the date hereof among Sheridan, the Company and Acquisition, as the same may
be amended, supplemented or otherwise modified from time to time, pursuant to
which, among other things, Acquisition will merge into Sheridan, with Sheridan
constituting the surviving corporation.
"Mezzanine Securities" means securities of the Company, excluding
Common Stock, but including preferred stock and warrants to purchase Common
Stock, issued to any of Vestar and its Affiliates prior to the Effective Time,
and any securities into or for which such securities are exchangeable.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"No Call Notice" shall have the meaning ascribed to such term in
Section 3.13(e).
"No ROFR Notice" shall have the meaning ascribed to such term in
Section 3.8(g).
"Non-Competition Period" means with respect to each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a non-competition provision, the period commencing on the last day of
the Term of Employment and ending on the first anniversary of the last day of
the Term of Employment.
"Offeror" shall have the meaning ascribed to such term in Section
3.8(a).
"Option" means any option to acquire Common Stock or other capital
stock of the Company, including without limitation, all options granted under
the Company's 1999 Stock Option Plan.
"Option Shares" means all Common Stock or other capital stock of the
Company received by a Management Investor upon the exercise or other settlement
of an Option.
"Other Capital Stock" shall have the meaning ascribed to such term
in Section 3.9(a)(i).
"Other Capital Stock Equivalents" shall have the meaning ascribed to
such term in Section 3.9(a)(ii).
<PAGE> 24
8
"Other Management Investors" shall have the meaning ascribed to such
term in the preamble to this Agreement.
"Payor Services" means payor services in the area of managed care,
third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs,
capitation pools and other similar arrangements.
"Permitted Payment" shall have the meaning ascribed to such term in
Section 3.13(g).
"Permitted Transferee" has the meaning ascribed to such term in
Section 3.2(a).
"Person" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust, unincorporated
association, joint venture, Governmental Authority or other entity of any nature
whatsoever.
"Public Offering" means the sale of Securities to the public
pursuant to an effective registration statement filed under the Securities Act.
"Purchased Shares" shall mean, with respect to each Management
Investor, those shares of Common Stock that are purchased by the Management
Investor from the Company (as adjusted in good faith and on a consistent basis
by the Board of Directors of the Company to reflect Exit Transactions and stock
splits, stock dividends, recapitalizations and other similar transactions),
other than pursuant to the exercise of an Option.
"Put Notice" shall have the meaning ascribed to such term in Section
3.14(a).
"Qualified Public Offering" shall mean the sale of Common Stock to
the public after the Effective Time pursuant to an effective registration
statement filed under the Securities Act, which, together with any earlier
registered public sales of Common Stock under the Securities Act occurring after
the Effective Time, results in aggregate gross proceeds to the Company or its
stockholders, or both, of at least $50 million.
"Regulations" means the regulations promulgated under the Code.
"Request" shall have the meaning ascribed to such term in Section
4.1(a).
"Requesting Stockholder" shall have the meaning ascribed to such
term in Section 4.1(a).
"Right" shall have the meaning ascribed to such term in Section
3.9(a).
"Securities" means shares of Common Stock or Common Stock
Equivalents or other securities of the Company, other than (i) debt securities
that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each
case whether owned on the date hereof or hereafter acquired.
<PAGE> 25
9
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"SEC" means the Securities and Exchange Commission.
"Selling Stockholder" shall have the meaning ascribed to such term
in Section 4.3(c).
"Senior Management Investors" shall have the meaning ascribed to
such term in the preamble to this Agreement.
"Sheridan" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include its successors by means of a
merger, consolidation, reorganization, recapitalization or similar transaction.
"Stockholders" means Vestar, the Management Investors, and their
respective Permitted Transferees.
"Subscription and Tender Agreements" shall have the meaning ascribed
to such term in the recitals to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or fifty percent (50%) or more of the
equity interest therein, is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Tag Notice" shall have the meaning ascribed to such term in Section
3.5(b).
"Tagging Stockholder" shall have the meaning ascribed to such term
in Section 3.5(a).
"Term of Employment" means with respect to each Management Investor
who is not a Senior Management Investor and who is not a party to a written
employment agreement with the Company or any of its Subsidiaries that contains a
non-competition provision, any time during the period in which such Management
Investor is employed by the Company or any of its Subsidiaries.
"Third Party" means any Person other than the Company, the
Stockholders and their Affiliates.
"Transfer" means any transfer, sale, assignment, distribution,
exchange, mortgage, pledge, hypothecation or other disposition of any Securities
or any interest therein, including transfers by operation of law in connection
with a merger transaction or otherwise.
<PAGE> 26
10
"Transfer Notice" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Offer" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Securities" shall have the meaning ascribed to such term
in Section 3.8(a).
"Vestar" shall have the meaning ascribed to such term in the
preamble to this Agreement.
"Vested Purchased Shares" shall mean at any time, the number of
Purchased Shares initially acquired by a Management Investor (as adjusted in
good faith and on a consistent basis by the Board of Directors of the Company to
reflect Exit Transactions and stock splits, stock dividends, recapitalizations
and other similar corporate transactions) times the Applicable Percentage.
1.2 Other Definitional Provisions; Interpretation. (a) The words
"hereof", "herein", and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Subsection, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(b) The headings in this Agreement are included for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of this Agreement.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) For purposes of comparing the beneficial ownership of any Person
on the date of execution and delivery of this Agreement to the level of such
ownership at any later time, the level of ownership on such later date shall be
adjusted to eliminate the effect of any subdivision of the Common Stock, any
combination of the Common Stock, any issuance of Common Stock or Common Stock
Equivalents by reason of any reclassification (including, without limitation,
any reclassification in connection with a merger or consolidation), or any
dividend payable in Common Stock or Common Stock Equivalents.
SECTION 2. VOTING AGREEMENTS
2.1 Election of Directors. (a) Each Stockholder hereby agrees that,
so long as this Agreement shall remain in effect, such Stockholder will vote all
of the voting Securities owned or held of record by such Stockholder so as to
elect and, during such period, to continue in office a Board of Directors of the
Company and each Subsidiary of the Company (other than Subsidiaries of
Sheridan), each consisting solely of the following:
(i) 3 designees of Vestar (or its designated Permitted Transferees);
<PAGE> 27
11
(ii) 2 designees of the Management Investors (who shall be Mitchell
Eisenberg and Lewis Gold so long as each of them is an executive officer of
Sheridan); and
(iii) 2 persons to be designated by Vestar (or its designated
Permitted Transferees) in its sole discretion after consultation with the
Management Investor Representative.
(b) If at any time while this Agreement shall remain in effect
Vestar (or its designated Permitted Transferees) shall notify the other
Stockholders of its desire to remove, with or without cause, any director of the
Company or any of its Subsidiaries previously designated by it in accordance
with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities
owned or held of record by it so as to remove such director.
(c) If at any time while this Agreement shall remain in effect any
director previously designated by Vestar (or its Permitted Transferees) or the
Management Investors ceases to serve on the Board of Directors of the Company or
any Subsidiary of the Company (whether by reason of death, resignation, removal
or otherwise), the Stockholder or Stockholders who designated such director
shall be entitled to designate a successor director to fill the vacancy created
thereby on the terms and subject to the conditions of paragraph (a). Each
Stockholder agrees to vote all of the voting Securities owned or held of record
by such Stockholder so as to elect any such director.
(d) The parties hereto hereby agree that any individual designated
as a director of the Company or any Subsidiary of the Company may be removed for
cause (as reasonably determined by the Board of Directors of the Company, other
than such person) with or without the consent of the Stockholder which
designated such individual. No such removal of an individual designated pursuant
to this Section 2.1 shall affect the rights of any of the Stockholders to
designate a different individual pursuant to this Section 2.1.
(e) No fees shall be paid by the Company or any of its Subsidiaries
to any member of their respective Boards of Directors who are employees of
Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a
member of such Board of Directors; provided that the foregoing shall not limit
reimbursement of expenses in accordance with the expense reimbursement policy of
Sheridan and its Subsidiaries.
(f) The Stockholders hereby agree that Vestar (or its designated
Permitted Transferees) shall have sole discretion to determine the composition
of the Company's and its Subsidiaries' Board of Directors' committees (e.g.,
audit, compensation, etc.) through the rights granted to Vestar (or its
designated Permitted Transferees) pursuant to Section 2.1(a)(i).
2.2 Other Voting Matters. (a) Each Management Investor and their
Permitted Transferees hereby agrees that, until the occurrence of the Lapse
Date, such Stockholder will vote all of the Securities owned or held of record
by such Stockholder, either in person or by proxy, whether at a meeting of
stockholders or by executing a written consent, (i) consistent with the vote of
Vestar with respect to the shares of Common Stock beneficially owned by Vestar
and (ii) to ratify, approve and adopt any and all actions adopted or approved by
the Board of Directors of the Company.
<PAGE> 28
12
(b) In order to effectuate the provisions of Sections 2.1 and 2.2
hereof, (i) each of the Management Investors and their Permitted Transferees
hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be
Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan,
a proxy to vote at any annual or special meeting of Stockholders, or to take
action by written consent in lieu of such meeting with respect to, or to
otherwise take action in respect of, all of the Securities owned or held of
record by the Management Investors and their Permitted Transferees in connection
with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the
provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is
irrevocable and is coupled with an interest. To effectuate the provisions of
this Section 2, the Secretary of each of the Company and each Subsidiary of the
Company, or if there be no Secretary such other officer of the Company or such
Subsidiary as the Board of Directors of the Company or such Subsidiary may
appoint to fulfill the duties of the Secretary, shall not record any vote or
consent or other action contrary to the terms of this Section 2.
SECTION 3. TRANSFERS AND ISSUANCES
3.1 Transfers to be Made Only as Permitted or Required by this
Agreement.
(a) Each Stockholder hereby agrees that such Stockholder will not,
directly or indirectly, Transfer any Securities unless such Transfer complies
with the provisions hereof and (i) such Transfer is pursuant to an effective
registration statement under the Securities Act and has been registered under
all applicable state securities or "blue sky" laws or (ii) such Stockholder
shall have furnished the Company with a written opinion of counsel reasonably
satisfactory to the Company in form and substance reasonably satisfactory to the
Company to the effect that no such registration is required because of the
availability of an exemption from registration under the Securities Act and all
applicable state securities or "blue sky" laws.
(b) Each Management Investor and their Permitted Transferees hereby
agrees that, except for Transfers in connection with a Public Offering,
Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or
3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no
Transfer shall occur unless the transferee shall agree to become a party to, and
be bound to the same extent as its transferor by the terms of, this Agreement in
accordance with the provisions of Section 5.6 hereof.
(c) Each Management Investor and their Permitted Transferees hereby
agrees that such Stockholder shall not, without the prior written consent of
Vestar (which consent may be withheld by Vestar in its absolute discretion),
effect a Transfer prior to the Lapse Date, except for Transfers in connection
with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10,
3.11, 3.12, 3.13 or 3.14 hereof.
3.2 Permitted Transfers. (a) Any Management Investor may Transfer
any of the Securities beneficially owned by him (i) to his spouse, parent,
descendant, step-child, or step-grandchild or any executor, estate, guardian,
committee, trustee or other fiduciary acting as such solely on behalf or solely
for the benefit of any such spouse, parent, descendant, step-child or
step-grandchild (collectively, a "Family Group"), (ii) to any trust,
corporation, partnership or limited liability company, all of the beneficial
interests in which shall be held, directly or
<PAGE> 29
13
indirectly, by such Management Investor and/or one or more of the Family Group
of such Management Investor; provided, however, that during the period that any
such trust, corporation, partnership or limited liability company holds any
right, title or interest in any Securities, no person other than such Management
Investor or members of the Family Group of such Management Investor may be or
become beneficiaries, stockholders, general partners or members thereof, (iii)
which he has purchased on a stock exchange or in the over-the-counter market
after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan,
the Company, Vestar or any of Vestar's Affiliates. A transferee under this
Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee
of Vestar and its Affiliates in a Transfer made in accordance with this
Agreement, is referred to as a "Permitted Transferee."
(b) Notwithstanding anything in this Agreement to the contrary,
Vestar and its Affiliates shall be entitled from time to time, without
compliance with Section 3.5, to Transfer any or all of the Securities
beneficially owed by them to any of their Affiliates who agrees to become a
party to, and be bound to the same extent as its transferor by, the terms of
this Agreement.
3.3 Effect of Void Transfers. In the event of any purported Transfer
of any Securities in violation of the provisions of this Agreement, such
purported Transfer shall be void and of no effect and the Company shall not give
effect to such Transfer.
3.4 Legend on Securities. Each certificate representing Securities
issued to any Stockholder shall bear the following legend on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE
"COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND
THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE
COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF
ANY VOTING RIGHTS GRANTED BY THE SECURITIES."
<PAGE> 30
14
3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in
effect, with respect to any proposed Transfer by any of Vestar and its
Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock
permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the
Transferring Stockholder shall have the obligation, and each other Stockholder
(other than Vestar or any of its Affiliates) shall have the right, to require
the proposed transferee to purchase from each such other Stockholder having and
exercising such right (each a "Tagging Stockholder") a number of shares of
Common Stock up to the product (rounded up to the nearest whole number) of (i)
the quotient determined by dividing (A) the aggregate number of shares of Common
Stock beneficially owned on a fully diluted basis by such Tagging Stockholder
and sought by the Tagging Stockholder to be included in the contemplated
Transfer by (B) the aggregate number of shares of Common Stock beneficially
owned on a fully diluted basis by the Transferring Stockholder and all Tagging
Stockholders and sought by the Transferring Stockholder and all Tagging
Stockholders to be included in the contemplated Transfer and (ii) the total
number of shares of Common Stock proposed to be directly or indirectly
Transferred to the transferee in the contemplated Transfer, and at the same
price per share of Common Stock and upon the same terms and conditions
(including without limitation time of payment and form of consideration) as to
be paid and given to the Transferring Stockholder; provided that a Stockholder
shall not be deemed to beneficially own any shares underlying unexercised
Options unless such Options are vested and exercisable as of the date of the Tag
Notice described in Section 3.5(b); and provided further that in order to be
entitled to exercise its right to sell shares of Common Stock to the proposed
transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to
make to the transferee the same representations, warranties, covenants,
indemnities and agreements as the Transferring Stockholder agrees to make in
connection with the proposed Transfer of the shares of Common Stock of the
Transferring Stockholder (except that in the case of representations and
warranties pertaining specifically to the Transferring Stockholder a Tagging
Stockholder shall make the comparable representations and warranties pertaining
specifically to itself); and provided further that all representations,
warranties and indemnities shall be made by Tagging Stockholders severally and
not jointly and that the liability of the Transferring Stockholder and the
Tagging Stockholders (whether pursuant to a representation, warranty, covenant,
indemnification provision or agreement) shall be evidenced in writings executed
by them and the transferee and shall be borne by each of them on a pro rata
basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and
wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a)
shall convert or exercise or exchange such number of Common Stock Equivalents
into or for Common Stock as may be required therefor on or prior to the closing
date of such Transfer.
(b) The Transferring Stockholder shall give notice (a "Tag Notice")
to all relevant Stockholders of each proposed Transfer giving rise to the rights
of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at
least 45 days prior to the proposed consummation of such Transfer, setting forth
the name of the Transferring Stockholder, the number of shares of Common Stock
proposed to be so Transferred, the name and address of the proposed transferee,
the proposed amount and form of consideration, the other terms and conditions of
payment offered by the proposed transferee and the representations, warranties
and indemnities to be made or given by the Transferring Stockholders, and a
representation that the proposed transferee has been informed of the tag-along
rights provided for in this Section 3.5 and has agreed to purchase shares of
Common Stock in accordance with the terms hereof. The tag-along rights provided
by
<PAGE> 31
15
this Section 3.5 must be exercised by each Tagging Stockholder within 20 days
following receipt of the notice required by the preceding sentence, by delivery
of a written notice to the Transferring Stockholder indicating such Tagging
Stockholder's desire to exercise its rights and specifying the number of shares
of Common Stock it desires to sell. The Transferring Stockholder shall be
entitled under this Section 3.5 to Transfer to the proposed transferee the
number of shares of Common Stock equal to the excess of (x) the number referred
to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of
Common Stock set forth in the written notices, if any, delivered by the Tagging
Stockholders pursuant to the preceding sentence (up to the maximum number of
shares of Common Stock beneficially owned by such Tagging Stockholder required
to be purchased by the proposed transferee pursuant to the first sentence of
Section 3.5(a)). If the proposed transferee fails to purchase shares of Common
Stock from any Tagging Stockholder that has properly exercised its tag-along
rights, then the Transferring Stockholder shall not be permitted to make the
proposed Transfer, and any such attempted Transfer shall be void and of no
effect, as provided in Section 3.3 hereof.
(c) If any of the Tagging Stockholders exercise their rights under
Section 3.5(a), (i) the first shares of Common Stock to be transferred by such
Tagging Stockholder must be Vested Purchased Shares until such Tagging
Stockholder owns no more Vested Purchased Shares, then Option Shares until such
Tagging Stockholder owns no more Option Shares, then any remaining Purchased
Shares and (ii) the closing of the purchase of the Common Stock with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Transferring Stockholder's Common Stock.
3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7
shall not be applicable to offers and sales of Securities in a Public Offering
or, if such Securities previously have been sold in a Public Offering, pursuant
to Rule 144 under the Securities Act.
3.7 Drag-Along Rights. So long as this Agreement shall remain in
effect, if any of Vestar and its Affiliates receives an offer from a Third Party
to purchase all or any portion of the outstanding shares of Common Stock and
such offer is accepted by Vestar or such Affiliate, as the case may be, then
each other Stockholder hereby agrees that it will, if requested in writing not
less than 15 days' prior to the requested Transfer date by Vestar or such
Affiliate, Transfer a pro rata number of Securities beneficially owned by it to
such Third Party on the terms of the offer so accepted by Vestar or such
Affiliate, as the case may be; including making the same representations,
warranties, covenants, indemnities and agreements that Vestar or such Affiliate,
as the case may be, agrees to make (except that, in the case of representations
and warranties pertaining specifically to Vestar or such Affiliate, as the case
may be, each other Stockholder shall make the comparable representations and
warranties pertaining specifically to itself); provided that all
representations, warranties and indemnities shall be made by Stockholders
severally and not jointly and that the liability of Stockholders (whether
pursuant to a representation, warranty, covenant, indemnification provision or
agreement) shall be evidenced in writings executed by them and the transferee
and shall be borne by each of them on a pro rata basis; and provided further
that the terms of such offer applicable to any Common Stock beneficially owned
by such other Stockholder are no less favorable than the terms of such offer
applicable to the Common Stock beneficially owned by Vestar or such Affiliate,
as the case may be, and their respective Affiliates (including with respect to
the amount and nature of consideration and time of receipt
<PAGE> 32
16
thereof); and provided further that the first shares of Common Stock Transferred
by such other Stockholder must be Vested Purchased Shares until such other
Stockholder owns no more Vested Purchased Shares, then the Option Shares until
such other Stockholder owns no more Option Shares, then the portion of any
Options then held by such other Stockholder that are then vested and exercisable
(provided in the case of a Transfer of any such portion of the Options that the
Company shall have made acceptable arrangements with the transferee for the same
per share consideration to be paid to such Stockholder for such portion of the
Option as the transferee pays for the shares of Common Stock to be purchased by
the transferee, reduced by the aggregate option exercise price for the
transferred portion of the Options) until no portion of the Options held by such
Stockholder is vested and exercisable, and then any remaining Purchased Shares.
3.8 Rights of First Refusal. (a) Each Management Investor and their
Permitted Transferees agree that if, prior to a Qualified Public Offering, such
Management Investor or any of its Permitted Transferees receives a bona fide
offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer
Securities") then owned by such Management Investor or such Management
Investor's Permitted Transferees (collectively, the "Management Investor's
Transfer Group") from any Person (the "Offeror") which any member of the
Management Investor's Transfer Group wishes to accept (the "Management Investor
Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be
reduced to writing and shall provide a written notice (the "Transfer Notice") of
such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice
shall also contain an irrevocable offer to sell the Transfer Securities to the
Company, Vestar and Sheridan (in the manner set forth below) at a price equal to
the price contained in, and upon the same terms and conditions as the terms and
conditions contained in, the Transfer Offer and shall be accompanied by a true
and complete copy of the Transfer Offer (which shall identify the Offeror, the
Transfer Securities, the price contained in the Transfer Offer and the other
material terms and conditions of the Transfer Offer). At any time within 30 days
after the date of the receipt by the Company, Vestar and Sheridan of the
Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan
or any of their designated Affiliates shall have the right and option to
purchase all (but not less than all) of the Transfer Securities covered by the
Transfer Offer either (i) for the same consideration and on the same terms and
conditions as the Transfer Offer or (ii) if the Transfer Offer includes any
consideration other than cash, then, at the sole option of the Company, Vestar,
Sheridan, or any of their designated Affiliates, as applicable, at the
equivalent all cash price, determined in good faith by a majority of the members
of the Company's Board of Directors. If the option referred to in the preceding
sentence is exercised, on or prior to the 60th day after the date of receipt by
the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar,
Sheridan or any other designated Affiliates, as applicable, shall execute and
deliver to the Management Investor Offeree a written agreement in the form
included in the Transfer Offer, including representations, warranties, covenants
and indemnities, if the Transfer Offer included such written agreement, and
shall pay the relevant cash consideration, by delivering a certified bank check
or checks in (or, if the Management Investor Offeree so elects at least three
business days prior to the closing date in a writing specifying the Management
Investor Offeree's bank account and other wire Transfer instructions, by wire
transferring) the appropriate amount and shall deliver the relevant non-cash
consideration to the Management Investor Offeree against delivery at the
principal office of Sheridan of certificates or other instruments representing
the Transfer Securities so purchased, appropriately endorsed by the Management
Investor Offeree. If at the end of such 30-day period,
<PAGE> 33
17
the Company, Vestar and Sheridan have not delivered written notice of exercise
by them of their right to purchase the Transfer Securities pursuant to this
Section 3.8 or if at the end of such 60-day period, the Company, Vestar and
Sheridan have not tendered the purchase price for such shares in the manner set
forth above, the Management Investor Offeree shall be free for a period of 90
days from the end of such 30- or 60-day period, as applicable, to Transfer not
less than all of the Transfer Securities to the Offeror on the terms and
conditions set forth in the Transfer Notice (including the execution and
delivery of any written agreement in the form included in the Transfer Offer).
Such Offeror shall agree in a writing in form and substance reasonably
satisfactory to the Company to become a party hereto and be bound to the same
extent as the Management Investor Offeree by the provisions hereof. Promptly
after such sale, the Management Investor Offeree shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion and time
of completion of such sale and of the terms thereof as may reasonably be
requested by the Company. If for any reason any Management Investor Offeree does
not Transfer Transfer Securities to the Offeror on the terms and conditions set
forth in the Transfer Notice, or if any Management Investor Offeree wishes to
sell the Transfer Securities on terms other than those set forth in the Transfer
Notice, the provisions of this Section 3.8 shall again be applicable to the
Transfer Securities.
(b) The closing of the purchase of the Transfer Securities by the
Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate,
upon exercise of its right of first refusal pursuant to Section 3.8(a) shall
take place at the principal office of Sheridan on a date specified by the
Company, Sheridan, Vestar or any of their designated Affiliates, as applicable,
no later than the last day of the 60-day period after the giving of the Transfer
Notice.
(c) Notwithstanding anything in this Section 3.8 to the contrary,
(i) neither Vestar nor any of its designated Affiliates may exercise a right of
first refusal under this Section 3.8 unless Vestar has received a written notice
from the Company indicating the Company's intention not to exercise such right
of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its
designated Affiliates may exercise a right of first refusal under this Section
3.8 unless Sheridan has received a No ROFR Notice from Vestar.
3.9 Participation Right. (a) Except as otherwise set forth in
Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or
any of its Affiliates:
(i) additional shares of Common Stock or Common Stock Equivalents or
capital stock of the Company other than Common Stock and Common Stock
Equivalents ("Other Capital Stock"); or
(ii) any warrants, rights, calls, options or other securities
exchangeable for or exercisable or convertible into Other Capital Stock or
any other security other than Common Stock, Common Stock Equivalents or
Other Capital Stock entitled to participate in the Company's profits
(collectively, "Other Capital Stock Equivalents");
unless, prior to such Issuance, the Company notifies each Management Investor in
writing of the proposed Issuance and grants to such notified party or, at the
election of such notified party, one of its Affiliates the right (the "Right")
to subscribe for and purchase such additional shares of Common Stock or Other
Capital Stock or such additional shares or units of
<PAGE> 34
18
Common Stock Equivalents or Other Capital Stock Equivalents (collectively,
"Equity Interests") so issued at the same price and upon the same terms and
conditions (including, in the event such Equity Interests are issued as a unit
together with other securities, the purchase of such other securities) as issued
in the Issuance such that:
(A) in the case of an Issuance in which shares of Common Stock or
Common Stock Equivalents are to be issued, immediately after giving effect
to the Issuance and exercise of the Right (including, for purposes of this
calculation, the issuance of shares of Common Stock upon conversion,
exchange or exercise of any Common Stock Equivalent issued in the Issuance
or subject to the Right), the shares of Common Stock beneficially owned by
the notified party and its Affiliates on a fully diluted basis (rounded to
the nearest whole share) shall represent the same percentage of the
aggregate number of shares of Common Stock outstanding on a fully diluted
basis as was beneficially owned by such notified party and its Affiliates
and Vestar and its Affiliates, respectively, immediately prior to the
Issuance; provided, that for purposes of the calculations required by this
Section 3.9(a)(A) notified parties and their Affiliates shall not be
deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance; and
(B) in the case of an Issuance in which shares of Other Capital
Stock or Other Capital Stock Equivalents are to be issued, the notified
party and its Affiliates shall have the Right to acquire a percentage of
the Other Capital Stock or Other Capital Stock Equivalents to be issued in
the Issuance equal to the percentage of shares of Common Stock on a fully
diluted basis that was beneficially owned by such notified party and its
Affiliates and Vestar and its Affiliates, respectively, immediately prior
to the Issuance; provided, that for purposes of the calculations required
by this Section 3.9(a)(B) notified parties and their Affiliates shall not
be deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance.
(b) The Right may be exercised by the notified party at any time by
written notice to the Company received by the Company within 20 days after the
date on which such notified party receives notice from the Company of the
proposed Issuance, and the closing of the purchase and sale pursuant to the
exercise of the Right shall occur at least 15 days (but not later than 180 days)
after the Company receives notice of the exercise of the Right and prior to or
concurrently with the closing of the Issuance. Notwithstanding the foregoing
provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of
Equity Interests pro rata to all holders of Common Stock and Other Capital
Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common
Stock Equivalent or any Other Capital Stock Equivalent outstanding on the
Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management
Investor or any other employee of the Company pursuant to a management stock
subscription agreement or stock option or other employee benefit plan of the
Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board
of Directors of the Company or a Subsidiary of the Company designated by Vestar
and its Permitted Transferees who is not a director, officer, general partner or
employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as
such to the
<PAGE> 35
19
Board of Directors of the Company or a Subsidiary of the Company, (v) any
Issuance pursuant to a bona fide underwritten public offering pursuant to an
effective registration statement under the Securities Act or (vi) any Issuance
of Mezzanine Securities.
3.10 Partial Transfers Following a Qualified Public Offering. Each
Senior Management Investor may, during the one year period commencing on the
second anniversary of the first Qualified Public Offering and during each one
year period commencing on each succeeding anniversary of such Qualified Public
Offering thereafter (each such anniversary being referred to as a "Measurement
Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option
Shares beneficially owned by such Senior Management Investor on the applicable
Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this
provision shall not permit a Senior Management Investor who has already
Transferred (pursuant to any provision of this Agreement which permits Transfers
by Senior Management Investors) the cumulative number of shares of Common Stock
he or she otherwise would be entitled to Transfer pursuant to this Section 3.10
to Transfer any additional shares of Common Stock.
3.11 Partial Transfers to Cover Option-Related Tax Payments.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by the Management Investor with Good Reason, and
thereafter such Management Investor exercises Options which would otherwise
expire unless so exercised, such Management Investor may Transfer Securities;
provided, that the aggregate purchase price for the Securities being Transferred
shall not exceed the total amount of taxes which such Management Investor's tax
consultant has reasonably advised will be due and owing in respect of such tax
year by such Management Investor as a result of such Management Investor
exercising such Options; and provided, further, that such Transfer shall be
subject to the right of first refusal provisions of Section 3.8.
3.12 Transfers to Other Management Investors.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then at
any time after the conclusion of the Second Call Period, such Management
Investor may Transfer all or any portion of the Securities beneficially owned by
him to one or more of the other Management Investors; provided, however, that if
the proposed purchase price for such Securities which is offered to the other
Management Investors is less than the relevant purchase price under Section
3.13(c), such proposed Transfer hereunder by such Management Investor shall be
subject to the right of first refusal provisions of Section 3.8.
3.13 Call Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated by the applicable employer for Cause, then within 180 days of the
employment termination date, and subject to Section 3.13(e), the Company,
Vestar, Sheridan or any of their designated Affiliates shall have the option to
purchase all or any portion of the Purchased Shares and Option Shares held by
such
<PAGE> 36
20
Management Investor and such Management Investor's Permitted Transferees by
providing written notice of the relevant election (including the number of
Securities to be purchased) to the applicable Management Investor and Permitted
Transferees (a "Call Notice"). The purchase price per share for such Securities
will be the lower of Cost and Fair Market Value on the date of termination of
employment.
(b) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated due to the death
or Disability of such Management Investor, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
such Securities will be the greater of Cost and Fair Market Value on the date of
termination of employment.
(c) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then
within the later of (1) 180 days of the employment termination date (and, with
respect to any Option Shares, within 180 days after the date of the last
exercise of any Options, if later) or (2) ten days after the applicable
Management Investor has rescinded his election to sell all or a portion of his
Purchased Shares which were to be paid for with a Junior Subordinated Note in
connection with the put right set forth in Section 3.14, and subject to Section
3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates
shall have the option to purchase all or any portion of the Purchased Shares and
Option Shares held by such Management Investor and such Management Investor's
Permitted Transferees by providing a Call Notice to the applicable Management
Investor and Permitted Transferees. The purchase price per share for (A) the
Applicable Percentage of the Purchased Shares and for all Option Shares will be
the greater of (x) Cost or (y) Fair Market Value on the date of termination of
employment and (B) the remaining portion of such Purchased Shares, if any, will
be Cost.
(d) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is voluntarily terminated by
such Management Investor without Good Reason, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
the Applicable Percentage of the Purchased Shares and for all Option Shares will
be Fair Market Value on the date of termination of employment and the purchase
price for the remaining portion of the Purchased Shares, if any, will be the
lower of (x) Cost or (y) Fair Market Value on the date of termination of
employment; provided that if such voluntary termination without Good Reason
occurs prior to the second anniversary of the Closing
<PAGE> 37
21
Date, the Purchase Price per share for all Option Shares will be the lower of
(x) Cost or (y) Fair Market Value on the date of termination of employment.
(e) Notwithstanding anything in this Section 3.13 to the contrary
(i) neither Vestar nor any of its designated Affiliates may exercise a call
right under this Section 3.13 unless Vestar has received written notice from the
Company indicating the Company's intention not to exercise such call right (a
"No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates
may exercise a call right under this Section 3.13 unless Sheridan has received a
No Call Notice from Vestar.
(f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair
Market Value on the date of the Management Investor's termination of employment
and none of the Company, Vestar or Sheridan exercises the call right with
respect to the Purchased Shares and Option Shares which it could have purchased
at Cost (the "Cost Securities") during the 180 day period commencing on such
date of termination (the "Initial Call Period"), then the Company, Vestar or
Sheridan (subject once again to the provisions of Section 3.13(e) with respect
to the Second Call Period regardless of whether No Call Notices were issued in
the Initial Call Period) will have an additional right to call the Cost
Securities during the 90-day period commencing on the eighteen-month anniversary
of the Management Investor's termination of employment (the "Second Call
Period") by providing a Call Notice to the applicable Management Investor. The
purchase price per share for such Securities pursuant to Section 3.13(c)(A) will
be the greater of (x) Fair Market Value on the date of termination of employment
and (y) Fair Market Value on the first day of the Second Call Period and the
purchase price for such Securities pursuant to Section 3.13(c)(B) will be the
lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call
Period.
(g) The completion of the purchases pursuant to Sections 3.13(a),
(b), (c), (d) and (f) shall take place at the principal office of Sheridan on or
prior to the thirtieth (30th) day after the giving of the applicable Call
Notice. The repurchase price for the Securities shall be paid by delivery to the
appropriate Management Investor or Permitted Transferee of a certified bank
check or checks in the appropriate amount payable to the order of such
Management Investor or Permitted Transferee unless Sheridan is the party
exercising such call right and a Financing Default exists or, after giving
effect to such payment would exist, which prohibits such cash payment, in which
case the portion of the cash payment so prohibited shall be made, to the extent
permitted by any loan agreement, indenture or other agreement to which Sheridan
is a party, by Sheridan's delivery of a junior subordinated promissory note
(which shall be subordinated and subject in right of payment to the prior
payment of all indebtedness of Sheridan including, without limitation, any debt
outstanding under any credit agreement and any modifications, renewals,
extensions, replacements and refunding of all such indebtedness) of Sheridan (a
"Junior Subordinated Note") in a principal amount equal to the amount of the
purchase price which cannot be paid in cash, payable in five equal annual
installments commencing on the first anniversary of the issuance thereof and
bearing interest payable annually in arrears at the publicly announced prime
rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all
or any of the purchase price for any of the Securities with a Junior
Subordinated Note, and then resells such Securities for cash, the portion of the
accrued but unpaid interest and, to the extent of any excess, the outstanding
principal amount of the Junior Subordinated Note that is equal to the amount of
such cash proceeds shall become immediately due and payable, unless and to the
extent
<PAGE> 38
22
that payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, the payment
of all or any portion of the amounts outstanding under such Junior Subordinated
Note can be repaid by Sheridan without giving rise to a Financing Default (a
"Permitted Payment"), Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment (accrued interest first and then principal) in cash to the applicable
Management Investor or Permitted Transferee by delivery of a certified bank
check to the order of such Management Investor or Permitted Transferee. If
Sheridan cannot pay the purchase price for any Securities subject to a Call
Notice in cash or a Junior Subordinated Note due to any circumstance described
in this subparagraph 9(g), Sheridan shall not be permitted to exercise the
applicable call right.
3.14 Put Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated due to the death or Disability of such Management Investor, then
within 180 days of the employment termination date such Management Investor and
the members of the Family Group of such Management Investor shall have the
option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one
occasion from such Management Investor and the members of the Family Group of
such Management Investor, all or any portion of the Purchased Shares held by
such Management Investor and the members of the Family Group of such Management
Investor by providing written notice of his or their election (including the
number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase
price per share for such Securities will be Fair Market Value on the date of
termination of employment.
(b) If, at any time prior to the Lapse Date, a Senior Management
Investor's employment with the Company and its Subsidiaries is terminated by the
applicable employer without Cause or by such Senior Management Investor with
Good Reason, then within 180 days of the employment termination date such Senior
Management Investor shall have the option to sell to Sheridan, and Sheridan
shall be obligated to purchase, on one occasion from such Senior Management
Investor a number of Purchased Shares held by such Senior Management Investor
the aggregate purchase price for which under this Section 3.14(b) is not in
excess of the aggregate purchase price paid by such Senior Management Investor
on the Closing Date for all Securities purchased by such Senior Management
Investor on the Closing Date. Such Senior Management Investor shall exercise
such put right by providing a Put Notice to Sheridan. The purchase price per
share for (A) the Applicable Percentage of such Purchased Shares will be Fair
Market Value on the date of termination of employment and (B) the remaining
portion of such Purchased Shares, if any, will be the lower of Cost and Fair
Market Value on the date of termination of employment.
(c) The completion of the purchase pursuant to Section 3.14 (a)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice. The purchase price for the Purchased
Shares included in the Put Notice shall be paid by delivery to the appropriate
Management Investor or the members of his Family Group, as applicable, of a
certified bank check or checks in the appropriate amount payable to the order of
such Management Investor or the members of his Family Group, as applicable,
unless a Financing Default exists or, after giving effect to such payment would
exist, which prohibits such cash
<PAGE> 39
23
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the purchase price with a Junior Subordinated Note, Sheridan
shall give the notice of the principal amount of such note at least 15 days
prior to such purchase, and the relevant Management Investor shall have ten days
thereafter to rescind his election to sell all or a portion of his Purchased
Shares to be paid for with such note. If Sheridan pays all or any portion of the
purchase price for any Purchased Shares with a Junior Subordinated Note, and
then resells such Purchased Shares for cash, the portion of the accrued but
unpaid interest and, to the extent of any excess, the outstanding principal
amount of the Junior Subordinated Note that is equal to the amount of such cash
proceeds shall become immediately due and payable, unless and to the extent that
payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted
Payment can be made, Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment in cash to the applicable Management Investor or the members of his
Family Group, as applicable, by delivery of a certified bank check to the order
of such Management Investor or the members of his Family Group, as applicable.
(d) The completion of the purchase pursuant to Sections 3.14 (b)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice, at which time at least fifty percent of
the purchase price shall be paid. If Sheridan elects to pay less than all of the
purchase price initially, the remaining portion of the purchase price shall be
paid in one payment on or prior to the first anniversary of the giving of the
Put Notice. The purchase price for the Purchased Shares included in the Put
Notice shall be paid by delivery to the appropriate Senior Management Investor
of a certified bank check or checks in the appropriate amount payable to the
order of such Senior Management Investor unless a Financing Default exists or,
after giving effect to such payment would exist, which prohibits such cash
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the initial payment of the purchase price with a Junior
Subordinated Note, Sheridan shall give the Senior Management Investor notice of
the principal amount of such note at least 15 days prior to such purchase, and
the relevant Senior Management Investor shall have ten days thereafter to
rescind his election to sell all or a portion of his Purchased Shares to be paid
for with such note. If Sheridan pays all or any portion of the purchase price
for any Purchased Shares with a Junior Subordinated Note, and then resells such
Purchased Shares for cash, the portion of the accrued but unpaid interest and,
to the extent of any excess, the outstanding principal amount of the Junior
Subordinated Note that is equal to the
<PAGE> 40
24
amount of such cash proceeds shall become immediately due and payable, unless
and to the extent that payment of such accrued interest or outstanding principal
under the Junior Subordinated Note would constitute or result in a Financing
Default. If at any time after the issuance by Sheridan of a Junior Subordinated
Note, a Permitted Payment can be made, Sheridan shall, as promptly as
practicable but not later than thirty days after such payment becomes
permissible, pay the Permitted Payment (accrued interest first and then
principal) in cash to the applicable Senior Management Investor by delivery of a
certified bank check to the order of such Senior Management Investor.
SECTION 4. REGISTRATION RIGHTS
4.1 Demand Registration.
(a) Common Stock Request. Upon the written request (a "Request") of
Vestar or its designated Permitted Transferees that the Company effect the
registration under the Securities Act of all or part of the shares of Common
Stock owned or to be acquired upon conversion, exercise or exchange of Common
Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting
Stockholder"), the Company will use its best efforts to effect the registration
under the Securities Act of such shares.
(b) Registration Statement Form. Registrations under this Section
4.1 shall be on such appropriate registration form of the SEC as shall (i) be
selected by the Company and (ii) permit the disposition of the Common Stock
being registered in accordance with the intended method or methods of
disposition specified in the request for such registration. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the underwriters, the Requesting Stockholder and the
Company, is required to be included.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, or
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
Governmental Authority for any reason not attributable to the Requesting
Stockholder or any of its Affiliates and has not thereafter become effective.
(d) Limitations on Registration on Request. Notwithstanding anything
in this Section 4.1 to the contrary, in no event will (i) the Company be
required to effect more than one registration pursuant to Section 4.1(a) within
any 180 day period or (ii) the Requesting Stockholder be entitled to more than
five registrations in the aggregate pursuant to Section 4.1(a); unless in the
case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of
the costs and expenses of each such additional registration (unless either (x) a
registration so requested is not deemed to have been effected pursuant to
Section 4.1(c) for a reason not attributable to the Requesting Stockholder or
any of its Affiliates or (y) the number of shares of Common Stock sought to be
included by such Requesting Stockholder in such registration is reduced by more
than 25% pursuant to the provisions of Section 4.2(b)).
<PAGE> 41
25
4.2 Incidental Registration.
(a) Right to Include Common Stock and Common Stock Equivalents. If
the Company at any time proposes to register any shares of Common Stock (or
Common Stock Equivalents, including any registration of Common Stock Equivalents
pursuant to the exercise of rights under Section 4.2(b)) under the Securities
Act (except registrations on such form(s) solely for registration of Common
Stock or Common Stock Equivalents in connection with any employee benefit plan
or dividend reinvestment plan or a merger or consolidation), including
registrations pursuant to Section 4.1(a), whether or not for sale for its own
account, it will each such time as soon as practicable give written notice of
its intention to do so to all the Stockholders. Upon the written request (which
request shall specify the total number of shares of Common Stock or Common Stock
Equivalents intended to be disposed of by such Stockholder) of any Stockholder
made within 30 days after the receipt of any such notice (15 days if the Company
gives telephonic notice with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such shorter
period of time is required because of a planned filing date), the Company will
use all reasonable efforts to effect the registration under the Securities Act
of all Common Stock held or to be acquired upon conversion, exercise or exchange
of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be
registered by the Company, Common Stock Equivalents) by the Stockholders which
the Company has been so requested to register for sale in the manner initially
proposed by the Company; provided that the Company shall not be obliged to
register any Common Stock Equivalents which are not of the same class, series
and form as the Common Stock Equivalents proposed to be registered by the
Company. If the Company thereafter determines for any reason not to register or
to delay registration of the Common Stock or Common Stock Equivalents (provided,
however, that in the case of any registration pursuant to Section 4.1(a), such
determination shall not violate any of the Company's obligations under Section
4.1 or any other provision of this Agreement), the Company may, at its election,
give written notice of such determination to the Stockholders and (A) in the
case of a determination not to register, shall be relieved of the obligation to
register such Common Stock or Common Stock Equivalents in connection with such
registration (without prejudice, however, to any right the Requesting
Stockholder may have to request that such registration be effected as a
registration under Section 4.1(a)) and (B) in the case of a determination to
delay registering, shall be permitted to delay registering any Common Stock or
Common Stock Equivalents of a Stockholder for the same period as the delay in
registration of such other securities. No registration effected under this
Section 4.2(a) shall relieve the Company of any obligation to effect a
registration upon a Common Stock Request under Section 4.1(a).
(b) Priority in Incidental Registration. In a registration pursuant
to this Section 4.2, if the managing underwriter of such underwritten offering
shall inform the Company and the relevant Stockholders by letter of its belief
that the number of shares of Common Stock or Common Stock Equivalents, as the
case may be, to be included in such registration would adversely affect its
ability to effect such offering, then the Company will be required to include in
such registration only that number of shares of Common Stock or Common Stock
Equivalents which it is so advised should be included in such offering. Shares
of Common Stock or Common Stock Equivalents proposed by the Company to be
registered for issuance by the Company shall have the first priority in a
registration pursuant to Section 4.2(a) and all other shares of Common
<PAGE> 42
26
Stock or Common Stock Equivalents to be registered (whether or not requested to
be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given
second priority without preference among the relevant holders. If less than all
of the Stockholder's shares of Common Stock or Common Stock Equivalents are to
be registered, each such Stockholder's shares of Common Stock or Common Stock
Equivalents shall be included in the registration pro rata based on the total
number of shares of Common Stock or Common Stock Equivalents sought to be
registered by each Stockholder (as opposed to the Company).
(c) Custody Agreement and Power of Attorney. Upon delivering a
request under this Section 4.2, Management Investors and their Permitted
Transferees will, if requested by the Company, execute and deliver a custody
agreement and power of attorney in form and substance reasonably satisfactory to
the Company and one of the director designees referred to in Section 2.1(a)(i)
with respect to such Stockholder's shares of Common Stock or Common Stock
Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement
and Power of Attorney"). The Custody Agreement and Power of Attorney will
provide, among other things, that the Stockholder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein (who shall be
reasonably satisfactory to one of the director designees referred to in Section
2.1(a)(i)) a certificate or certificates representing such shares of Common
Stock or Common Stock Equivalents (duly endorsed in blank by the registered
owner or owners thereof or accompanied by duly executed stock powers in blank)
and irrevocably appoint said custodian and attorney-in-fact as such
Stockholder's agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on such Stockholder's behalf
with respect to the matters specified therein. Such Stockholder also agrees to
execute such other agreements as the Company may reasonably request to further
evidence the provisions of this Section 4.2.
4.3 Registration Procedures. In connection with the Company's
obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all
reasonable efforts to effect such registration and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use all reasonable efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (i) 180 days following the date on which such
registration statement is declared effective or (ii) the termination of the
offering being made thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
shares of Common Stock or Common Stock Equivalents, as the case may be, covered
by such registration statement until such Common Stock or Common Stock
Equivalents have been sold or such lesser period of time as the Company, any
seller of such Common Stock or Common Stock Equivalents or any underwriter is
required under the Securities Act to deliver a prospectus in accordance with the
intended methods of disposition by the sellers
<PAGE> 43
27
of such Common Stock or Common Stock Equivalents set forth in such registration
statement or supplement to such prospectus;
(c) furnish to each Stockholder which owns shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by such registration
statement (the "Selling Stockholders") and the managing underwriter, if any, at
least one executed original of the registration statement and such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, as may reasonably be requested by
such Selling Stockholder;
(d) use all reasonable efforts (i) to register or qualify all shares
of Common Stock or Common Stock Equivalents covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions where an
exemption is not available as the Selling Stockholders shall reasonably request,
(ii) to keep such registration or qualification in effect for so long as such
registration statement remains in effect and (iii) to take any other action
which may be reasonably necessary or advisable to enable the Selling
Stockholders to consummate the disposition in such jurisdictions of such Common
Stock or Common Stock Equivalents; provided that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, subject itself to taxation in any such jurisdiction or take
any action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Stockholders and the managing underwriter, if
any, promptly, and confirm such advice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to a registration statement or related prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the registered
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or information
becoming known which requires the making of any changes in a registration
statement or related prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (vi) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v)
above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document
<PAGE> 44
28
so that, as thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(h) use its best efforts to furnish to the Selling Stockholders a
signed counterpart, addressed to the Selling Stockholders and the underwriters,
if any, of (A) an opinion of counsel for the Company, and (B) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of the accountant's letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities (and dated the dates such opinions and comfort
letters are customarily dated) and, in the case of the accountant's letter, such
other financial matters, and in the case of the legal opinion, such other legal
matters, as the Selling Stockholders or the underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Selling Stockholders
an earnings statement satisfying the provisions of Section 10(a)(i) of the
Securities Act and Rule 158 promulgated thereunder, no later than 90 days after
the end of any 12-month period beginning after the effective date of a
registration statement pursuant to which shares of Common Stock or Common Stock
Equivalents are sold, which statement shall cover such 12-month period;
(j) cooperate with the Selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock or Common Stock Equivalents to
be sold; and enable such shares of Common Stock or Common Stock Equivalents to
be in such denominations and registered in such names as the Selling
Stockholders or the managing underwriters, if any, may request at least two
Business Days prior to any sale of shares of Common Stock or Common Stock
Equivalents to the underwriters;
(k) use its best efforts to cause the shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by the applicable
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Selling
Stockholder(s) or the underwriters, if any, to consummate the disposition of
such shares of Common Stock or Common Stock Equivalents;
(l) cause all shares or units of Common Stock or Common Stock
Equivalents, as the case may be, covered by the registration statement to be
listed on each securities exchange, if any, on which securities of such class,
series and form issued by the Company, if any, are then listed if requested by
the managing underwriters, if any, or the holders of a majority of the shares or
units of Common Stock or Common Stock Equivalents covered by the registration
statement and entitled hereunder to be so listed;
<PAGE> 45
29
(m) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
(n) as soon as practicable prior to the filing of any document which
is to be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement) provide copies
of such document to counsel to the Selling Stockholders and to the managing
underwriters, if any, and make the Company's representatives available for
discussion of such document and consider in good faith making such changes in
such document prior to the filing thereof as counsel for such Selling
Stockholders or underwriters may reasonably request.
The Company may require each Selling Stockholder to furnish to the
Company such information regarding such Selling Stockholder and the distribution
of such securities as the Company may from time to time reasonably request in
writing in order to comply with the Securities Act.
The Selling Stockholders agree that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue
disposition pursuant to such registration statement of any shares of Common
Stock or Common Stock Equivalents, as the case may be, covered by such
registration statement or prospectus until their receipt of the copies of the
supplemented or amended prospectus relating to such registration statement or
prospectus or until they are advised in writing by the Company that the use of
the applicable prospectus may be resumed (and the period of such discontinuance
shall be excluded from the calculation of the period specified in clause (x) of
Section 4.3(a)) and, if so directed by the Company, will deliver to the Company
(at the Company's expense, except as otherwise provided in Section 4.1(d)) all
copies, other than permanent file copies then in their possession, of the
prospectus covering such securities in effect at the time of receipt of such
notice. The Selling Stockholders agree to furnish the Company a signed
counterpart, addressed to the Company and the underwriters, if any, of an
opinion of counsel for the Selling Stockholders covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of selling stockholder's counsel
delivered to the underwriters in underwritten public offerings of securities
(and dated the dates such opinions are customarily dated) and such other legal
matters as the Company or the underwriters may reasonably request.
4.4 Underwritten Offerings.
(a) Demand Underwritten Offerings. In any underwritten offering
pursuant to a registration requested under Section 4.1, the Company will use its
best efforts to enter into an underwriting agreement for such offering with the
underwriters selected by the Requesting Stockholder, such agreement and
underwriters to be reasonably satisfactory in form and substance to the Company,
the Requesting Stockholder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type. The Selling Stockholders who
hold shares of Common Stock to be
<PAGE> 46
30
distributed by such underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
them and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to their
obligations. The Company may require that any or all of the representations and
warranties by, and the other agreements on the part of the Selling Stockholders
to and for the benefit of such underwriters shall also be made to and for the
benefit of the Company with due regard to the amount of Securities being sold by
such Selling Stockholder and the nature of such representations, warranties and
agreements and the underwriting.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any shares of its Common Stock or Common Stock Equivalents
under the Securities Act as contemplated by Section 4.2 and such Securities are
to be distributed by or through one or more underwriters, the Company and the
Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents
to be distributed by such underwriters in accordance with Section 4.2 hereof
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of them and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to their obligations. The Company may, at its option, require that any
or all of the representations and warranties by, and the other agreements on the
part of the Selling Stockholders to and for the benefit of such underwriters
shall also be made to and for the benefit of the Company with due regard to the
amount of Securities being sold by such Selling Stockholder and the nature of
such representations, warranties and agreements and the underwriting.
4.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Stockholders, the
underwriters and their respective counsels and accountants a reasonable
opportunity (but such Persons shall not have the obligation) to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the SEC, and, to the extent practicable, each amendment thereof or
supplement thereto, and, subject to the execution and delivery of a customary
confidentiality agreement, will give each of them such access to its books and
records (to the extent customarily given to the underwriters of the Company's
securities), and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary to conduct a reasonable investigation
within the meaning of the Securities Act.
4.6 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause shares of Common Stock and Common Stock Equivalents to be
registered under the Securities Act are subject to each of the following
limitations, conditions and qualifications:
<PAGE> 47
31
(a) The Company shall be entitled to postpone for a reasonable
period of time the filing or effectiveness of, or suspend the rights of Selling
Stockholders to make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (i) 15 days after the cessation of the circumstances described in
clauses (A) and (B) below or (ii) 120 days after the date of the determination
of the Board of Directors of the Company referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (i) of Section 4.3(a)) if the Board of Directors of
the Company determines in good faith that (A) there is a material undisclosed
development in the business or affairs of the Company (including any pending or
proposed financing, recapitalization, acquisition or disposition), the
disclosure of which at such time could be adverse to the Company's interests or
(B) the Company has filed a registration statement with the SEC, such
registration statement has not yet been declared effective, the Company is using
its reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such registration would be adversely affected. If the Company shall so delay the
filing of a registration statement, it shall, as promptly as possible, notify
the Selling Stockholders of such determination, and the Selling Stockholders
shall have the right (x) in the case of a postponement of the filing or
effectiveness of a registration statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (y) in the case of a suspension of the right
to make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company shall not be required hereby to include shares of
Common Stock or Common Stock Equivalents in a registration statement if, in the
written opinion (to be issued to, and relied upon by, the Stockholders seeking
inclusion) of outside counsel to the Company of recognized standing in
securities law matters, the beneficial owners of such Common Stock or Common
Stock Equivalents seeking registration would be free to sell all of such shares
of Common Stock or Common Stock Equivalents within the current calendar quarter
without registration under Rule 144 under the Securities Act.
(c) The Company's obligations shall be subject to the obligations of
the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish
all information and materials and to take any and all actions as may be required
under applicable federal and state securities laws and regulations to permit the
Company to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such registration statement.
(d) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
4.7 Expenses. The Company and Sheridan jointly and severally agree
to pay all reasonable out-of-pocket costs and expenses incurred in connection
with each registration of Common Stock or Common Stock Equivalents pursuant to
this Agreement, including, without limitation, the reasonable fees and
disbursements of a single firm of outside counsel retained by Selling
Stockholders which beneficially own a majority of the total number of shares or
units of Common Stock or Common Stock Equivalents being registered by Selling
Stockholders (the
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32
"Majority Selling Stockholders"), and any and all filing fees payable to the
SEC, fees with respect to filings required to be made with stock exchanges, the
NASDAQ and the NASD, fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of a single firm of
outside counsel for the underwriters or the Majority Selling Stockholders in
connection with blue sky qualifications of the Common Stock or Common Stock
Equivalents being registered and determination of its eligibility for investment
under the laws of such jurisdictions as the Selling Stockholders may designate),
printing expenses, fees and disbursements of counsel and accountants of the
Company, including costs associated with comfort letters, and fees and expenses
of other Persons retained by the Company, but excluding underwriters' expenses
(including discounts, commissions or fees of underwriters and expenses included
therein, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the securities being registered or
legal expenses of any Person other than the Company and the Selling
Stockholders) but including the fees and expenses of any qualified independent
underwriter required to participate in such registration pursuant to applicable
law or the requirements of the NASD. The Company and its Subsidiaries shall, in
any event in all cases, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), and the expense of securities law liability
insurance and rating agency fees, if any.
4.8 Indemnification.
(a) Indemnification by the Company. In connection with any
registration pursuant hereto in which shares of Common Stock or Common Stock
Equivalents are to be disposed of, the Company shall indemnify and hold
harmless, to the full extent permitted by law, each holder of such Common Stock
or Common Stock Equivalents to be disposed of and, when applicable, its
officers, directors, agents and employees and each Person who controls such
holder (within the meaning of the Securities Act or the Exchange Act) against
all losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, including, without
limitation, any loss, claim, damage, liability or expense resulting from the
failure to keep a prospectus current, except insofar as the same (i) are caused
by or contained in any information relating to such holder furnished in writing
to the Company by such holder expressly for use therein or (ii) are caused by
such holder's failure to deliver a copy of the current prospectus simultaneously
with or prior to such sale after the Company has furnished such holder with a
sufficient number of copies of such prospectus correcting such material
misstatement or omission or (iii) arise in respect of any offers to sell or
sales made during any period when a holder is required to discontinue sales
under Section 4.3(e) (and after such holder has received in writing the notice
contemplated by Section 4.3(e)). The Company shall also indemnify underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each person
who controls such Persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the holders of
such Common Stock or Common Stock Equivalents to be disposed of, and shall enter
into an indemnification agreement with such Persons containing such terms, if
requested.
<PAGE> 49
33
(b) Indemnification by Stockholders. In connection with each
registration statement effected pursuant hereto in which shares of Common Stock
or Common Stock Equivalents are to be disposed of, each Selling Stockholder
shall, severally but not jointly, indemnify and hold harmless, to the full
extent permitted by law, the Company, each other Selling Stockholder and their
respective directors, officers, agents and employees and each Person who
controls the Company and each other Selling Stockholder (within the meaning of
the Securities Act or the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in such registration
statement or prospectus or preliminary prospectus or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue statement or omission relates to such Selling Stockholder and is
contained in any information furnished in writing by such Selling Stockholder or
any of its Affiliates to the Company expressly for inclusion in such
registration statement or prospectus. In no event shall the liability of any
Selling Stockholder hereunder be greater in amount than the dollar amount of the
proceeds actually received by such Selling Stockholder upon the sale of the
securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder shall give prompt notice to the indemnifying party of
any claim with respect to which it shall seek indemnification and shall permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the indemnifying party shall have agreed to pay such fees or expenses, or (ii)
the indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (iii) in the opinion of
outside counsel to such Person there may be one or more legal defenses available
to such Person which are different from or in addition to those available to the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). If such defense is not assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent (but such consent shall not be unreasonably withheld). No
indemnified party shall be required to consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a written
release in form and substance reasonably satisfactory to such indemnified party
from all liability in respect of such claim or litigation. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim shall
not be obligated to pay the fees and expenses of more than one firm of counsel
(and, if necessary, local counsel) for all parties indemnified by such
indemnifying party with respect to such claim, unless in the written opinion of
outside counsel to an indemnified party a conflict of interest as to the subject
matter exists between such indemnified party and another indemnified party with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel for such indemnified party.
<PAGE> 50
34
(d) Contribution. If for any reason the indemnification provided for
herein is unavailable to an indemnified party or is insufficient to hold it
harmless as contemplated hereby, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of any Selling Stockholder for
such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received by such Selling Stockholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
4.9 Participation in Underwritten Registrations. No Stockholder or
Permitted Transferee may participate in any underwritten registration hereunder
unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of
Common Stock or Common Stock Equivalents on the basis provided in and in
compliance with any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7
under the Exchange Act, and (b) completes and executes all questionnaires,
appropriate and limited powers of attorney, escrow agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements; provided that all such documents shall be
consistent with the provisions hereof.
4.10 Rule 144. The Company hereby covenants that after it has filed
(and such registration statement has become effective) a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of
Common Stock, the Company will file in a timely manner all reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any Stockholder, make publicly
available other information so long as necessary to permit sales by such
Stockholder under Rule 144 under the Securities Act) and will take such further
action as any Stockholder may reasonably request to the extent required from
time to time to enable such Stockholder to sell shares of Common Stock under
Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management
Investor shall Transfer shares of Common Stock under Rule 144 unless expressly
permitted to do so by the terms of this Agreement.
4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any
of its shares of Common Stock or Common Stock Equivalents is included in a
registration statement filed by the Company in connection with an underwritten
public offering it shall not effect any public sale or distribution of shares of
Common Stock or Common Stock Equivalents during the 30 days prior to or the 180
day period beginning on the effective date of such registration statement
(except as part of such registration) if and to the extent reasonably requested
in writing (with reasonable prior notice) by the managing underwriter of the
underwritten public offering.
(b) The Company agrees not to effect any primary public sale or
distribution of any Common Stock or Common Stock Equivalents, as the case may
be, during the 10 days prior to and the 180 day period beginning on the
effective date of any registration statement in which
<PAGE> 51
35
any Stockholder is participating in connection with an underwritten public
offering of Common Stock or Common Stock Equivalents, as the case may be, if and
to the extent reasonably requested in writing (with reasonable prior notice) by
the managing underwriter of the underwritten public offering.
4.12 Mezzanine Securities. Notwithstanding anything to the contrary
herein, the Company may grant registration rights to holders of Mezzanine
Securities which are more, as or less favorable to such holders than the
registration rights of the parties hereto. To the extent that Mezzanine
Securities consist of Common Stock or Common Stock Equivalents, holders of
Mezzanine Securities may be given the right by the Company to participate in
registrations as if such holders were Stockholders, and the Company shall not be
obliged hereunder to comply with any provision of this Section 4 in respect of a
registration of Mezzanine Securities.
SECTION 5. MISCELLANEOUS
5.1 Additional Securities Subject to Agreement. Each Stockholder
agrees that any other Securities which it shall hereafter acquire by means of a
stock split, stock dividend, distribution, exercise of stock options, or
otherwise (other than Mezzanine Securities or pursuant to a Public Offering or
Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the
same extent as if held on the date hereof.
5.2 Termination. Except as otherwise provided herein, this Agreement
shall terminate, and thereby become null and void, as to any particular
Securities, on the date on which they are sold in a Public Offering or are sold
pursuant to Rule 144 under the Securities Act (unless such Securities are
reacquired by a Stockholder).
5.3 Injunctive Relief. The Stockholders and their Permitted
Transferees acknowledge and agree that a violation of any of the terms of this
Agreement will cause the Stockholders and their Permitted Transferees
irreparable injury for which adequate remedy at law is not available.
Accordingly, it is agreed that each Stockholder and Permitted Transferee shall
be entitled to an injunction, restraining order or other equitable relief to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction in the
United States or any state thereof, in addition to any other remedy to which
they may be entitled at law or equity.
5.4 Other Stockholders' Agreements. None of the Stockholders shall
enter into any stockholder agreement or other arrangement of any kind with any
Person with respect to any Securities which is inconsistent with the provisions
of this Agreement or which may impair its ability to comply with this Agreement.
5.5 Amendments. This Agreement may be amended only by a written
instrument signed (a) by Vestar, so long as it or its Affiliates own Securities,
and (b) by Stockholders other than Vestar and its Affiliates which own on a
fully diluted basis Securities representing at least a majority of the voting
power represented by all Securities outstanding on a fully diluted basis and
owned by all Stockholders other than Vestar and its Affiliates.
<PAGE> 52
36
5.6 Successors, Assigns and Transferees. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their Permitted Transferees and their respective successors, each of
which Permitted Transferees shall agree, in a writing in form and substance
satisfactory to the Company and the owners on a fully diluted basis of
Securities representing at least a majority of the voting power represented by
all Securities outstanding on a fully diluted basis and owned by all
Stockholders, to become a party hereto and be bound to the same extent as its
transferor hereby, provided that no Stockholder may assign to any Permitted
Transferee any of its rights hereunder other than in connection with a Transfer
to such Permitted Transferee of Securities in accordance with the provisions of
this Agreement.
5.7 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or when delivered by a
recognized courier or, in the case of telecopy notice, when received, addressed
as follows to the parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
if to the Company, Sheridan or Vestar, to it:
c/o Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Facsimile: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Facsimile: (212) 455-2502
if to any other Stockholder, to such Stockholder at such
Stockholder's address or telecopy number set forth in the books
and records of the Company.
5.8 Integration. This Agreement and the documents referred to herein
or delivered pursuant hereto contain the entire understanding of the parties
with respect to the subject matter hereof and thereof. There are no agreements,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof and thereof other than those expressly set forth herein
and therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE> 53
37
5.9 Severability. If one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
5.11 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
except for matters directly within the purview of the General Corporation Law of
the State of Delaware (the "DGCL"), which shall be governed by the DGCL.
5.12 Jurisdiction. Any action to enforce, which arises out of or in
any way relates to, any of the provisions of this Agreement may be brought and
prosecuted in such court or courts located within the States of New York as
provided by law; and the parties consent to the jurisdiction of such court or
courts located within the States of New York and to service of process by
registered mail, return receipt requested, or by any other manner provided by
New York law.
5.13 Management Investors. Each employee or director of the Company
or any of its Subsidiaries who becomes party to a stock subscription agreement
or option agreement with any of the Company and its Subsidiaries after the date
hereof shall become a party hereto and shall be bound hereby. The Company shall
not issue any securities to an employee or director of the Company or any of its
Subsidiaries unless he or she enters into a supplementary agreement with the
Company agreeing to be bound by the terms hereof in the same manner as the other
Management Investors. Each such supplementary agreement shall become effective
upon its execution by the Company and such employee or director, and it shall
not require the signature or consent of any other party hereto. Such
supplementary agreement may modify some of the terms hereof as they effect such
employee or director; provided that the modified terms shall be no more
favorable to such employee or director than the terms set forth herein.
5.14 83(b) Election. Promptly after the Closing Date, each
Management Investor shall, with respect to all Securities beneficially owned by
such Management Investor, make a timely election under Section 83(b) of the Code
in accordance with applicable Regulations thereunder.
5.15 Management Investor Representative. Each Management Investor
hereby designates and appoints (and each Permitted Transferee of each such
Management Investor shall be deemed to have so designated and appointed)
Mitchell Eisenberg, with full power of substitution (the "Management Investor
Representative") as the representative of each such Person to perform all such
acts as are required, authorized or contemplated by this Agreement to
<PAGE> 54
38
be performed by any such Person and hereby acknowledges that the Management
Investor Representative shall be the only Person authorized to take any action
so required, authorized or contemplated by this Agreement by each such Person.
Each such Person further acknowledges that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive the
death or incapacity of such Person. Each such Person hereby authorizes (and each
Permitted Transferee shall be deemed to have authorized) the other parties
hereto to disregard any notice or other action taken by such Person pursuant to
this Agreement on any action so taken or any notice given by the Management
Investor Representative and are and will be entitled and authorized to give
notices only to the Management Investor Representative for any notice
contemplated by this Agreement to be given to any such Person. A successor to
the Management Investor Representative may be chosen by Management Investors
which own on a fully diluted basis Securities representing at least a majority
of the voting power represented by all Securities outstanding on a fully diluted
basis and owned by all Management Investors, provided that written notice
thereof is given by the successor to the Management Investor Representative to
the Company. Whenever any action or consent (but not any forbearance) is
required to be taken or given by the Management Investors, the action or consent
of the Management Investor Representative shall be considered the act or consent
of all the Management Investors, and Vestar and the Company shall be protected
in relying on such act or consent.
5.16 Covenant Not to Compete. (a) Each Management Investor who is
not a Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
non-competition provision hereby covenants and agrees that, except as provided
below, during the Term of Employment and the Non-Competition Period, the
Management Investor shall not, without the express written consent of the
Company, directly or indirectly, engage in any activity which is, or participate
or invest in or assist (whether as owner, part-owner, stockholder, partner,
director, officer, trustee, employee, agent, independent contractor or
consultant, or in any other capacity) any Competitive Enterprise, except that
the Management Investor may make passive investments in a Competitive Enterprise
the shares of which are publicly traded if such investment constitutes less than
one percent of the equity of such enterprise. Without implied limitation, the
forgoing covenant shall include hiring or attempting to hire for or on behalf of
any such Competitive Enterprise any officer or other employee of Sheridan or any
Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee
to terminate his or her relationship or employment with Sheridan or any
Affiliate of Sheridan, soliciting for or on behalf of any such Competitive
Enterprise any client or customer (including any Medical Customer) of Sheridan
or any Affiliate of Sheridan, and diverting to any Person, any client or
business opportunity of Sheridan or any Affiliate of Sheridan.
(b) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period, each
Management Investor who is not a Senior Management Investor and who is not a
party to a written employment agreement with the Company or any of its
Subsidiaries that contains a non-competition provision shall not devote any time
to consulting, lecturing or engaging in other self-employment or employment
activities without the prior written consent of Sheridan.
(c) This Section 5.16 shall survive the termination of this
Agreement.
<PAGE> 55
39
5.17 Business Opportunities. Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a business
opportunities provision agrees, while he is employed by any of the Company and
its Subsidiaries, to offer or otherwise make known or available to the Company
or any Subsidiary, as directed by the Company and without additional
compensation or consideration, any business prospects, contracts or other
business opportunities that he may discover, find, develop or otherwise have
available to him in any field in which the Company or any of its Affiliates is
engaged, and further agrees that any such prospects, contracts or other business
opportunities shall be the property of the Company.
5.18 Confidentiality. (a) Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
confidentiality provision acknowledges that the Management Investor has and will
necessarily become informed of, and have access to, certain valuable and
confidential information of the Company and its Affiliates, including, without
limitation, trade secrets, technical information, plans, lists of patients,
data, records, fee schedules, computer programs, manuals, processes, methods,
intangible rights, contracts, agreements, licenses, personnel information and
the identity of health care providers (collectively, the "Confidential
Information"), and that the Confidential Information, even though it may be
contributed, developed or acquired in whole or in part by the Management
Investor, is the Company's exclusive property to be held by the Management
Investor in trust and solely for the Company's benefit. Accordingly, except as
required by law, the Management Investor shall not, at any time, either during
or subsequent to the Term of Employment, use, reveal, report, publish, copy,
transcribe, Transfer or otherwise disclose to any person, corporation or other
entity, any of the Confidential Information without the prior written consent of
the Company, except to responsible officers and employees of the Company and its
Subsidiaries and other responsible persons who are in a contractual or fiduciary
relationship with the Company or one of its Subsidiaries and except for
information which legally and legitimately is or becomes of general public
knowledge from authorized sources other than the Management Investor.
(b) Upon the termination of the Term of Employment, each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a confidentiality provision shall promptly deliver to the Company all
property and possessions of the Company and its Subsidiaries, including all
drawings, manuals, letters, notes, notebooks, reports, copies, deliverable
Confidential Information and all other materials relating to the Company's and
its Subsidiaries' business which are in the Management Investor's possession or
control.
5.19 Effectiveness. This Agreement shall become effective on the
Closing Date.
<PAGE> 56
40
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg
---------------------------------
Name: Mitchell Eisenberg
VESTAR/CALVARY INVESTORS, LLC
By: VESTAR CAPITAL PARTNERS III, L.P.,
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
<PAGE> 57
/s/ Mitchell Eisenberg
--------------------------------------
MITCHELL EISENBERG
/s/ Lewis D. Gold
--------------------------------------
LEWIS D. GOLD
/s/ Michael F. Schundler
--------------------------------------
MICHAEL F. SCHUNDLER
/s/ Jay a. Martus
--------------------------------------
JAY A. MARTUS
/s/ Gilbert L. Drozdow
--------------------------------------
GILBERT L. DROZDOW
<PAGE> 58
SCHEDULE 1
INITIAL OTHER
MANAGEMENT INVESTORS
GILBERT L. DROZDOW
<PAGE> 59
Exhibit B
Vestar/Calvary Holdings, Inc.
1999 Stock Option Plan
SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary
Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional
officers, key employees and outside directors of, and consultants to, the
Company and its Subsidiaries and (ii) enabling such individuals to participate
in the long-term growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean any entity that, directly or indirectly, is
controlled by, controls or is under common control with, the Company.
"Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Option, which may, but need
not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the earlier to occur of (x) the date
of the sale or disposition, in one or a series of related transactions, of
all or substantially all of the assets of the Company to any "person" or
"group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the
Exchange Act), other than Vestar, or (y) the date of the sale, exchange or
other disposition by Vestar and its Affiliates, in one or a series of
transactions (including, without limitation, by way of merger,
reorganization, recapitalization, consolidation, Public Offering (as
defined in the Stockholders' Agreement), sale of capital stock or assets
of Sheridan or any other Subsidiary of the Company or similar transaction
that results in the disposition, directly or indirectly, of the equity
interests of Vestar and its Affiliates (other than the Management
Investors) in the Company) (collectively, an "Exit Transaction") of 70% or
more of the sum of (1) their equity interest in the Company immediately
following the Closing Date (as defined in the Stockholders'sAgreement)
plus (2) any additional capital contributions to, or investments in, the
Company made by any of Vestar and its Affiliates after the Closing Date
(clauses (1) and (2), collectively, the "Aggregate Investment"); provided
that, in the case of (y) either (A) the consideration received by Vestar
and its Affiliates in the Exit Transaction for 70% or more of the
Aggregate Investment is cash or securities that are distributed in kind to
the limited partners of Vestar Capital Partners III, L.P. and its
Affiliates or a combination thereof or (B) the Exit Transaction results in
(i) designees of Vestar and its Affiliates not constituting a majority of
the Board of Directors (or analogous governing body) of the Company and
(ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding
<PAGE> 60
2
securities of the Company entitled to vote generally in the election of
directors (or members of an analogous governing body) of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the compensation committee of the Board, or
such other committee of the Board as may be designated by the Board to
administer the Plan.
"Company" shall have the meaning specified in the Stockholders'
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall have the meaning specified in the
Stockholders' Agreement.
"Management Investor" shall have the meaning specified in the
Stockholders' Agreement.
"Option" shall mean a right to purchase Shares from the Company that
is granted under Section 6 of the Plan.
"Participant" shall mean any officer, key employee or outside
director of, or consultant to, the Company or its Subsidiaries eligible
for an Option under Section 5 of the Plan and selected by the Committee to
receive an Option under the Plan.
"Performance Option" shall mean an Option granted under the Plan
which becomes exercisable, or for which the period of exercisability is
accelerated, upon the satisfaction of certain performance criteria
established by the Committee and set forth in the Award Agreement
evidencing such option.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock
Option Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by
the SEC under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the staff thereof.
"Shares" shall mean (i) shares or units of Common Stock (as defined
in the Stockholders' Agreement) or (ii) as may be determined by the
Committee pursuant to Section 4(b).
<PAGE> 61
3
"Stockholders' Agreement" shall mean the Agreement, dated as of
March 24, 1999, among the Company and the other parties identified
therein.
"Subsidiary" shall mean any entity that, directly or indirectly,
is controlled by the Company.
"Substitute Options" shall have the meaning specified in Section
4(c).
"Time Option" shall mean an Option granted under the Plan, which is
not a Performance Option, and which becomes exercisable over time based on
a Participant's continued employment with the Company or its Subsidiaries.
"Vestar" shall mean Vestar Capital Partners III, L.P. and any of
its Affiliates.
SECTION 3. Administration. (a) The Plan shall be administered by the
Committee. Subject to the terms of the Plan, any Award Agreement and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Options to be
granted to a Participant; (iii) determine the number of Shares to be covered by,
or with respect to which payments, rights, or other matters are to be calculated
in connection with, Options; (iv) determine the terms and conditions of any
Option; (v) determine whether, to what extent, and under what circumstances
Options may be settled or exercised in cash, Shares, other securities, other
Options or other property, or canceled, forfeited, or suspended and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Options, other property, and other amounts
payable with respect to an Option shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret,
administer, reconcile any inconsistency, correct any default and/or supply any
omission in the Plan and any instrument or agreement relating to, or Option made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan and subject to the
terms of any Award Agreement, all designations, determinations, interpretations,
and other decisions under or with respect to the Plan or any Option shall be
within the sole discretion of the Committee, may be made at any time and shall
be final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Option, and any
holder of Shares.
(c) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option
hereunder.
<PAGE> 62
4
SECTION 4. Shares Available for Options.
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
the aggregate number of Shares with respect to which Options may be granted
under the Plan shall be 1,150,000; provided, however, that in no event shall the
number of Shares subject to Time Options granted under the Plan exceed 666,667.
If, after the effective date of the Plan, any Shares covered by an Option
granted under the Plan, or to which such an Option relates, are forfeited, or if
an Option has expired, terminated or been cancelled for any reason whatsoever
(other than by reason of exercise or vesting), then the Shares covered by such
Option shall again be, or shall become, Shares with respect to which Options may
be granted hereunder.
(b) Adjustments. In the event that the Committee determines that any Exit
Transaction, dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee in its
discretion to be necessary or appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it in good faith
deems equitable, adjust any or all of (i) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Options may be granted, (ii) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
subject to outstanding Options, and (iii) the exercise price with respect to any
Option or, if deemed appropriate in connection with a Change of Control, make
provision for an immediate cash payment to the holder of an outstanding Option
in consideration for the cancellation of such Option in an amount equal to the
excess, if any, of the Fair Market Value of the Shares subject to the Options
over the aggregate exercise price of such Option.
(c) Substitute Options. Options may be granted, in the discretion of the
Committee, under the Plan in assumption of, or in substitution for, outstanding
awards previously granted by a company acquired by the Company or with which the
Company combines ("Substitute Options"). The number of Shares underlying any
Substitute Options shall be counted against the aggregate number of Shares
available for Options under the Plan.
(d) Sources of Shares Deliverable Under Options. Any Shares delivered
pursuant to an Option may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any officer, key employee or outside director of,
or consultant to, the Company or any of its Subsidiaries (including any
prospective officer or key employee) shall be eligible to be designated a
Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Options shall
be granted, the
<PAGE> 63
5
number of Shares to be covered by each Option, the exercise price therefor and
the conditions and limitations applicable to the exercise of the Option. None of
the Options granted under the Plan are intended to meet the requirements of
Section 422 of the Code or any successor provision thereto.
(b) Exercise Price. The Committee shall establish the exercise price at
the time each Option is granted, which exercise price shall be set forth in the
applicable Award Agreement.
(b) Exercise. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award Agreement or, with the consent of the
Participant thereafter. The Committee may impose such conditions with respect to
the exercise of Options, including without limitation, any relating to the
application of federal or state securities laws, as it may deem necessary or
advisable.
(c) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Such payment shall be made in cash or by bank check or,
subject to the consent of the Committee in its sole discretion, in Shares which
have been owned by the Participant for at least six months, such Shares to be
valued at their Fair Market Value as of the date of exercise.
SECTION 7. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that any such amendment, alteration, suspension, discontinuance or termination
that would impair the rights of any Participant or any holder or beneficiary of
any Option theretofore granted shall not to that extent be effective without the
consent of the affected Participant, holder or beneficiary.
(b) Amendments to Options. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Option theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment or
alteration that would impair the rights of any Participant or any holder or
beneficiary of any Option theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary. In addition, with the consent of any Participant, holder or
beneficiary, the Company may suspend, discontinue, cancel or terminate any
Option theretofore granted, prospectively or retroactively
(c) Adjustment of Options Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the performance criteria applicable to outstanding Performance Options in the
event of any extraordinary and nonrecurring events affecting the Company or its
Subsidiaries, or the financial statements of the Company or its Subsidiaries, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines in good faith that such adjustments are necessary in
order to prevent dilution or enlargement of rights under such Performance
Options.
<PAGE> 64
6
SECTION 8. Change of Control. In the event of a Change of Control after
the date of the adoption of this Plan, (i) any outstanding Time Options then
held by Participants, which are unexercisable or otherwise unvested, shall
automatically be deemed exercisable or otherwise vested, as the case may be, as
of immediately prior to such Change of Control and (ii) any outstanding
Performance Options, whether exercisable or not, then held by Participants,
shall continue to be governed by the terms of each such Participant's Award
Agreement.
SECTION 9. General Provisions.
(a) Nontransferability.
(i) Each Option shall be exercisable only by the Participant during the
Participant's lifetime, or, if permissible under applicable law, by the
Participant's legal guardian or representative. No Option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant otherwise than by will or by the laws of descent and distribution
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(ii) Notwithstanding the foregoing, the Committee may in the applicable
Award Agreement evidencing an Option granted under the Plan or at any time
thereafter in an amendment to an Award Agreement provide that Options granted
hereunder may be transferred by the Participant to whom such Option was granted
(the "Grantee") without consideration, subject to such rules as the Committee
may adopt to preserve the purposes of the Plan, to:
(A) the Grantee's spouse, children or grandchildren (including
adopted and stepchildren and grandchildren) (collectively, the "Immediate
Family");
(B) a trust solely for the benefit of the Grantee and his or her
Immediate Family; or
(C) a partnership or limited liability company whose only partners
or members are the Grantee and his or her Immediate Family members;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); provided that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the requirements
of the Plan and any applicable Award Agreement evidencing the Option.
The terms of any Option transferred in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee and any
reference in the Plan or in an Award Agreement to an optionee, Grantee or
Participant shall be deemed to refer to the Permitted Transferee, except
that (a) Permitted Transferees shall not be entitled to transfer any
Options, other than by will or the laws of descent and distribution; (b)
Permitted Transferees shall not be entitled to exercise any transferred
Options unless
<PAGE> 65
7
there shall be in effect a registration statement on an
appropriate form covering the Shares to be acquired pursuant to the
exercise of such Option if the Committee determines that such a
registration statement or form is necessary or appropriate, (c) the
Committee or the Company shall not be required to provide any notice to a
Permitted Transferee, provided all required notices are given to the
Grantee and (d) the consequences of termination of the Grantee's
employment by, or services to, the Company or any of its Affiliates under
the terms of the Plan and the applicable Award Agreement shall continue to
be applied with respect to the Grantee, following which the Options shall
be exercisable by the Permitted Transferee only to the extent, and for the
periods, specified in the Plan and the applicable Award Agreement.
(b) No Rights to Options. No Participant or other Person shall have any
claim to be granted any Option, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Options. The terms and
conditions of Options and the Committee's determinations and interpretations
with respect thereto need not be the same with respect to each Participant
(whether or not such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other securities of
the Company delivered under the Plan pursuant to any Option or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or other
securities are then listed, any applicable Federal or state laws, and any
applicable written agreements between Vestar and/or the Company and the
Participants including, without limitation, the Stockholders' Agreement, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(d) Withholding.
(i) A Participant shall be required to pay to the Company or any
Affiliate and the Company shall have the right and is hereby authorized to
withhold, any applicable withholding taxes in respect of an Option, its exercise
or any payment or transfer under an Option or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such withholding taxes.
(ii) Notwithstanding any provision of this Plan to the contrary, in
connection with the transfer of an Option to a Permitted Transferee pursuant to
Section 9(a) of the Plan, the Grantee shall remain liable for any withholding
taxes required to be withheld upon the exercise of such Option by the Permitted
Transferee.
(e) Award Agreements. Each Option hereunder shall be evidenced by an Award
Agreement, which shall be delivered to the Participant and shall specify the
terms and conditions of the Option and any rules applicable thereto, including
but not limited to the effect on such Option of the death, disability or
termination of employment or service of a Participant, and the effect, if any,
of such other events as may be determined by the Committee.
(f) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other
<PAGE> 66
8
compensation arrangements, which may, but need not, provide for the grant of
options (subject to stockholder approval if such approval is required), and such
arrangements may be either generally applicable or applicable only in specific
cases.
(g) No Right to Employment. The grant of an Option shall not be construed
as giving a Participant the right to be retained in the employ of, or in any
consulting relationship to, the Company or any Affiliate. Further, the Company
or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(h) No Rights as Stockholder. Subject to the provisions of the applicable
Option, no Participant or holder or beneficiary of any Option shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares.
(i) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of New York.
(j) Severability. If any provision of the Plan or any Option is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Option, or would disqualify the Plan or any Option under any
law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Option, such provision shall be stricken
as to such jurisdiction, Person or Option and the remainder of the Plan and any
such Option shall remain in full force and effect.
(k) Other Laws. The Committee may refuse to issue or transfer any Shares
or other consideration under an Option if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration will violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Option shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Option granted hereunder shall be construed as an offer to
sell securities of the Company, and no such offer shall be outstanding, unless
and until the Committee in its sole discretion has determined that any such
offer, if made, would be in compliance with all applicable requirements of the
U.S. federal and any other applicable securities laws.
(l) No Trust or Fund Created. Neither the Plan nor any Option shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Option, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
<PAGE> 67
9
(m) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(n) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the persons and/or entities who own, immediately after giving effect
to the Effective Time (as defined in the Agreement and Plan of Merger dated as
of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and
Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding
stock of the Company, determined in a manner consistent with Section 280G(b)(5)
of the Internal Revenue Code of 1986, as amended and the proposed regulations
promulgated thereunder. If such approval is not obtained, this Plan and any
Options granted under the Plan shall be null and void and of no force and
effect.
(b) Expiration Date. No Option shall be granted under the Plan after
December 31, 2009. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Option granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Option or to waive any conditions or rights under any such
Option shall, continue after December 31, 2009.
SECTION 11. Awards Subject to Stockholders' Agreement.
Options granted under the Plan and any Shares delivered upon the exercise
or settlement of any Options granted hereunder shall be subject to the
Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement
as it may be amended from time to time are hereby incorporated herein by
reference. In the event of a conflict between any term or provision contained
herein and any terms or provisions of the Stockholders' Agreement, the
applicable provisions of the Stockholders' Agreement will govern and prevail.
<PAGE> 68
Exhibit C
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
PERFORMANCE OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - ----------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 69
2
(a) Time Vesting.
Subject to paragraphs (b), (c) and (d) of this Section 2, the Option
shall vest and become exercisable in full on the ninth anniversary of the
purchase of shares of common stock of Sheridan pursuant to the Offer (the date
of such purchase being the "Purchase Date").
(b) Accelerated Vesting Based Upon Performance.
(i) Subject to the Participant's continued employment with the
Company, the Option shall vest and become exercisable on an accelerated basis
with respect to up to twenty-five percent (25%) of the Shares initially covered
by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting
Shares") on each of the first, second, third and fourth anniversaries of the
Purchase Date (each an "Accelerated Vesting Date") as follows:
(A) With respect to each Accelerated Vesting Date, 100% of
the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity
Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending
immediately prior to the applicable Accelerated Vesting Date (such last day of
the fiscal year being referred to as the "Determination Date") equals or exceeds
the Maximum Annual Price Target (described below) for such Determination Date;
(B) With respect to each Accelerated Vesting Date, 0% of the
Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per
Share as of the applicable Determination Date is less than or equal to the
Minimum Annual Price Target (described below) for such Determination Date; and
(C) With respect to each Accelerated Vesting Date, if the
Common Equity Per Share as of the Determination Date is less than the Maximum
Annual Price Target and greater than the Minimum Annual Price Target for such
Determination Date, then the number of Scheduled Accelerated Vesting Shares
which shall vest will equal the product of (x) 100% of the Scheduled Accelerated
Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall
equal the quotient obtained by dividing (A) the excess of the Value of Common
Equity Per Share as of the Determination Date over the Minimum Annual Price
Target for such Determination Date by (B) the excess of the Maximum Annual Price
Target as of the Determination Date over the Minimum Annual Price Target for
such Determination Date.
(ii) In the event that the Option does not vest on an accelerated
basis with respect to all of the Scheduled Accelerated Vesting Shares on an
Accelerated Vesting Date solely as a result of the failure to achieve or exceed
the applicable Maximum Annual Price Target, then the number of Scheduled Vesting
Shares with respect to which the Option did not vest on an accelerated basis
(the "Missed Shares"), will be available for vesting on the next succeeding
Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The
number of Missed Shares, if any, which will vest on an accelerated basis on the
Make-Up Vesting Date will equal the excess, if any, of (x) the number of
Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the
Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of
Scheduled Accelerated Vesting Shares which actually vested on an accelerated
basis on the immediately preceding Accelerated Vesting Date.
<PAGE> 70
3
<TABLE>
<CAPTION>
Determination Minimum Maximum
Vesting Date Date Annual Price Target Annual Price Target
- - ------------ ---- ------------------- -------------------
<S> <C> <C> <C> <C>
1st anniversary of FY Ending
Purchase Date 12/31/99 $10.18 $10.64
2nd anniversary of FY Ending
Purchase Date 12/31/00 $12.21 $13.83
3rd anniversary of FY Ending
Purchase Date 12/31/01 $14.65 $17.98
4th anniversary of FY Ending
Purchase Date 12/31/02 $17.58 $23.37
5th anniversary of FY Ending $21.10 $30.38
Purchase Date 2/31/03
(Used for 4th
anniversary
missed shares only)
</TABLE>
The determination of the Value of Common Equity Per Share for each fiscal
year shall be made by the Board in good faith based upon, and immediately
following receipt of, the audited financial statements for such fiscal year and
will be calculated (after giving effect to the issuance of all Time Options and
all Performance Options which have previously vested or which will vest in such
fiscal year) pursuant to the methodology outlined in Exhibit A.
(c) Termination of Employment
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability (as
each such term is defined in Section 3(a) below), and the Minimum Annual Price
Target for the Determination Date applicable to the next succeeding Accelerated
Vesting Date is exceeded as of such Determination Date, then the Option shall,
upon the Board's determination that the Minimum Annual Price Target for such
Determination Date has been exceeded, become vested with respect to, and the
Vested Portion of the Option shall include a number of Shares (the "Termination
Shares") equal to the sum of:
(i) the product of (A) the number of Scheduled Accelerated Vesting
Shares that would otherwise have vested pursuant to Section 2(b)(i) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) a fraction, the numerator of which is the
number of days that passed since the immediately preceding Accelerated Vesting
Date through and including the date of the Participant's
<PAGE> 71
4
termination of employment and the denominator of which is 365 (the "Termination
Fraction"); plus
(ii) If there were Missed Shares with respect to the immediately
preceding Accelerated Vesting Date, the product of (A) the number of Missed
Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) the Termination Fraction.
(d) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control, the Option shall, to the extent not previously
cancelled, immediately become vested and exercisable with respect to the
Scheduled Accelerated Vesting Shares for any remaining future Accelerated
Vesting Dates, if, and only if, in connection with the Change of Control, Vestar
receives aggregate proceeds, in cash, securities or a combination of cash and
securities, having an aggregate Fair Market Value in an amount equal to or in
excess of the product of (i) Vestar's Aggregate Investment (as defined below)
times (ii) the Minimum Investment Multiple (as defined below) applicable to the
fiscal year of the Company in which such Change of Control occurs; provided
that, securities received by Vestar shall be taken into account for purposes
hereof only if such securities are distributed by Vestar, in kind, to its
limited partners.
For purposes of this Agreement:
"Vestar's Aggregate Investment" shall mean the total amount of capital
invested by Vestar in the Company and its Subsidiaries, including investments
made in connection with the Offer, the Merger contemplated by the Merger
Agreement, or otherwise; and
"Minimum Investment Multiple" shall mean with respect to the Company's
fiscal years ending December 31, 1999 through December 31, 2003 as follows:
<TABLE>
<CAPTION>
FY In Which Change of Control Occurs Minimum Investment Multiple
- - ------------------------------------ ---------------------------
<S> <C> <C>
1999 1.22
2000 1.66
2001 2.12
2002 2.50
2003 3.26
</TABLE>
For purposes of this Section 2(d), "Fair Market Value"shall mean,
solely with respect to securities distributed by Vestar to its limited partners,
the value of such securities as reported by Vestar to such limited partners.
3. Exercise of Option.
<PAGE> 72
5
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability and, with respect to the
Termination Shares, if applicable, 30 days after the determination of the
number of Termination Shares, if later;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason and,
with respect to the Termination Shares, if applicable, 30 days after the
determination of the number of Termination Shares, if later; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in effect as of or after the Date of Grant (as the
same may be amended in accordance with the terms thereof) or if not
defined therein or if there shall be no such agreement, "Cause" shall
exist if a Participant has (i) committed an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against Vestar, Sheridan, the
Company or any Subsidiary or a felony involving the business, assets,
customers or clients of Vestar, Sheridan, the Company or any Subsidiary or
has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material
breach of any written confidentiality, non-compete, non-solicitation or
business opportunity covenant contained in any agreement entered into by
the Participant and Vestar, Sheridan, the Company or any of their
Affiliates; (iii) substantially failed to perform the Participant's duties
to Sheridan, the Company or any Subsidiary, including by committing a
material breach of any written covenant contained in any agreement entered
into by the Participant and Vestar, Sheridan, the Company or any
Subsidiary (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been
remedied within a reasonable time specified by Sheridan (it being
understood that Sheridan can act on behalf of its Affiliates) that is not
less than thirty (30) days after delivery to the Participant by Sheridan
of written notice thereof; or (iv) breached the Participant's obligations
pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse
policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to
<PAGE> 73
6
time, or if there shall be no plan or if not defined therein, the
Participant's becoming physically or mentally incapacitated and consequent
inability for a period of six (6) months in any twelve (12) consecutive
month period to perform the Participant's duties to Sheridan, the Company
or any Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option
may be exercised by delivering to the Company at its principal office written
notice of intent to so exercise; provided that, the Option may be exercised with
respect to whole Shares only. Such notice shall specify the number of Shares for
which the Option is being exercised and shall be accompanied by payment in full
of the Exercise Price. The payment of the Exercise Price shall be made in cash
or, subject to the consent of the Committee, in Shares which have been owned by
the Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this
Agreement to the contrary, the Option may not be exercised prior to the
completion of any registration or qualification of the Option or the Shares that
is required to comply with appliicable state and federal securities or any
ruling or regulation of any governmental body or national securities exchange
that the Committee shall in its sole discretion determine in good faith to be
necessary or advisable.
(iii) Upon the Company's determination that the Option has
been validly exercised as to any of the Shares, the Company shall issue
certificates in the Participant's name for such Shares. However, the Company
shall not be liable to the Participant for damages
<PAGE> 74
7
relating to any delays in issuing the certificates to him, any loss of the
certificates, or any mistakes or errors in the issuance of the certificates or
in the certificates themselves.
(iv) In the event of the Participant's death, the Vested
Portion of the Option shall remain exercisable by a Permitted Transferee, the
Participant's executor or administrator, or the person or persons to whom the
Participant's rights under this Agreement shall pass by will or by the laws of
descent and distribution as the case may be, to the extent set forth in Section
3(a). Any heir or legatee of the Participant shall take rights herein granted
subject to the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant
shall become a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this
Agreement shall be construed as giving the Participant the right to be retained
in the employ of, or in any consulting relationship to, the Company or any
Affiliate. Further, the Company or an Affiliate may at any time dismiss the
Participant or discontinue any consulting relationship, free from any liability
or any claim under the Plan or this Agreement, except as otherwise expressly
provided herein.
5. Legend on Certificates. To the extent provided by the
Stockholders' Agreement, the certificates representing the Shares purchased by
exercise of the Option shall contain a legend stating that they are subject to
the Stockholders' Agreement and may be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause an additional
legend or legends to be put on any such certificates to make appropriate
reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant.
Notwithstanding the foregoing, the Participant may transfer all or
any portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer
<PAGE> 75
8
under an Option or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to
the exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering
into this Agreement the Participant agrees and acknowledges that the Participant
has received and read a copy of the Plan and the Stockholders' Agreement. The
Option is subject to the Plan and the Stockholders' Agreement. The terms and
provisions of the Plan and the Stockholders' Agreement as they may be amended
from time to time in accordance with their respective terms are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan or the
Stockholders' Agreement, the applicable terms and provisions of the Plan or the
Stockholders' Agreement, as applicable, will govern and prevail. In the event of
a conflict between any term or provision of the Plan and any term or provision
of the Stockholders' Agreement, the applicable terms and provisions of the
Stockholders' Agreement will govern and prevail.
<PAGE> 76
9
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
---------------------------
Agreed and acknowledged as of the date first above written:
- - -------------------------
<PAGE> 77
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS
ARE SUBJECT TO ACCELERATED VESTING
STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements
for the year, the Company shall calculate (and the Board of Directors shall
review and approve) EBITDA in good faith pro forma to give effect to all
acquisitions and divestitures completed during the year as if they had occurred
on January 1 of such year.
STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated
in Step 1) by 7.5.
STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value
(calculated in Step 2), deduct year-end balances for Total Debt and Other
Obligations, add year-end balance for Total Cash and add Total Option Proceeds.
For purposes of this calculation, Other Obligations includes any debt-like
instruments such as acquisition-related non-compete, consulting or stock price
guarantee payments as well as non-convertible preferred stock and
out-of-the-money convertible securities. Total Option Proceeds should include
options proceeds related to i) all time-based options (whether or not vested),
ii) all performance-based options that have vested in prior years and iii) all
performance-based options that vest in current year.
STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number
of shares outstanding at the beginning of the year, ii) shares issued in current
year for any reason, including those related to acquisitions, iii) all
time-based options (whether or not vested), iv) all performance-based options
that vest in prior years or in the current year, v) shares associated with
in-the-money convertible preferred stock and vi) shares associated with other
in-the-money common stock equivalents including, but not limited to, warrants
and any other options.
STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common
Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step
4). In Step 6, this number will be compared with the maximum and minimum targets
listed below to determine how many (if any) performance-based options vest in
current year.
STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR.
Multiply the number of options eligible for accelerated vesting in current year
pursuant to the Performance Option Plan by i) if the Value of Common Equity per
Share (Step 5) is greater than or equal to current year's Maximum Annual Price
Target, 100%; ii) if the Value of Common Equity per Share is less than or equal
to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common
Equity per Share is between current year's Minimum and Maximum Annual Price
Targets, the quotient calculated by dividing (A) excess of the Value of Common
Equity per Share over current year's Minimum Annual Price Target by (B) the
excess of current year's Maximum Annual Price Target over current year's Minimum
Annual Price Target.
<TABLE>
<CAPTION>
Minimum Annual Price Maximum Annual Price Target
Year Target
---------- -------------------- -----------------------------
<S> <C> <C>
1999 $10.18 $10.64
2000 12.21 13.83
2001 14.65 17.98
2002 17.58 23.37
2003 21.10 30.38
</TABLE>
<PAGE> 78
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST
PURSUANT TO PERFORMANCE MEASURES
<TABLE>
<CAPTION>
======================================================================
1999 2000 2001 2002 2003
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8
EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5
---------------------------------------------------------------------
Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3
Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6)
Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6
---------------------------------------------------------------------
Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3
Beginning # of Shares 7.317 10.105 10.225 10.346 10.467
Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000
Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000
Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000
Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000
Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000
---------------------------------------------------------------------
Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467
Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24
% appreciation 42.1% 32.9% 42.0% 34.3% 27.7%
ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38
% APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0%
ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10
% APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
</TABLE>
(a) Represents full year EBITDA adjusted to give effect to all current year
acquisitions and divestitures as if they occurred on January 1.
(b) For purposes of calculating Total Enterprise Value at the end of any year,
the EBITDA multiple shall be 7.5x.
(c) Other Obligations include any debt-like instruments such as
acquisition-related noncompete, consulting or stock price guarantee payments
as well as non-convertible preferred stock and out-of-the-money convertible
securities.
(d) Option proceeds assume exercise of all vested in-the-money options,
including those options available for current year vesting. In this example,
assumes all options have exercise price of $9.25.
(e) For purposes of calculating value of common equity per share on this
schedule, all time-based options are deemed vested and exercised.
(f) 483,333 performance options are available for grant. At Closing, 333,333 of
such options will be granted to existing members of management. The
remaining 150,000 options will be reserved for future grant. This example
assumes that all 483,333 are granted.
(g) Assumes a June 30, 1999 closing. If calculated value of common equity per
share exceeds the maximum annual share price target for that year, then 100%
of eligible options will vest (0.121 million in this example).
(h) Assumes a June 30, 1999 closing. If calculated value of common equity per
share is below the minimum annual share price target for that year, then 0%
of eligible options will vest (0.000 million in this example).
<PAGE> 79
Exhibit D
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
TIME OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - --------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 80
2
(a) Time Vesting.
Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest
and become exercisable with respect to twenty percent (20%) of the Shares
initially covered by the Option on each of the first, second, third, fourth and
fifth anniversaries (each such anniversary being a "Vesting Date") of the
purchase of shares of common stock of Sheridan pursuant to the Offer.
(b) Termination of Employment.
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability, the
Option shall, as of the date of such termination, become vested with respect to,
and the Vested Portion of the Option shall include, that portion of the Option
which would otherwise have vested on the next Vesting Date.
(c) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control the Option shall, to the extent not then vested
and not previously canceled, immediately become fully vested and exercisable.
3. Exercise of Option.
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in
<PAGE> 81
3
effect as of or after the Date of Grant (as the same may be amended in
accordance with the terms thereof) or if not defined therein or if there
shall be no such agreement, "Cause" shall exist if a Participant has (i)
committed an act of fraud, embezzlement, misappropriation or breach of
fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or
a felony involving the business, assets, customers or clients of Vestar,
Sheridan, the Company or any Subsidiary or has been convicted by a court
of competent jurisdiction or has plead guilty or nolo contendere to any
other felony; (ii) committed a material breach of any written
confidentiality, non-compete, non-solicitation or business opportunity
covenant contained in any agreement entered into by the Participant and
Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Participant's duties to Sheridan, the
Company or any Subsidiary, including by committing a material breach of
any written covenant contained in any agreement entered into by the
Participant and Vestar, Sheridan, the Company or any Subsidiary (other
than a confidentiality, non-compete, non-solicitation or business
opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty
(30) days after delivery to the Participant by Sheridan of written notice
thereof; or (iv) breached the Participant's obligations pursuant to
Sheridan's, the Company's or any Subsidiary's substance abuse policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to time, or
if there shall be no plan or if not defined therein, the Participant's
becoming physically or mentally incapacitated and consequent inability for
a period of six (6) months in any twelve (12) consecutive month period to
perform the Participant's duties to Sheridan, the Company or any
Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
<PAGE> 82
4
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option may be
exercised by delivering to the Company at its principal office written notice of
intent to so exercise; provided that, the Option may be exercised with respect
to whole Shares only. Such notice shall specify the number of Shares for which
the Option is being exercised and shall be accompanied by payment in full of the
Exercise Price. The payment of the Exercise Price shall be made in cash or,
subject to the consent of the Committee, in Shares which have been owned by the
Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this Agreement to
the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares that is required to
comply with applicable state and federal securities or any ruling or regulation
of any governmental body or national securities exchange that the Committee
shall in its sole discretion determine in good faith to be necessary or
advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss of the certificates, or any mistakes or errors in the issuance
of the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested Portion of the
Option shall remain exercisable by a Permitted Transferee, the Participant's
executor or administrator, or the person or persons to whom the Participant's
rights under this Agreement shall pass by will or by the laws of descent and
distribution as the case may be, to the extent set forth in Section 3(a). Any
heir or legatee of the Participant shall take rights herein granted subject to
the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant shall become
a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this Agreement
shall be construed as giving the Participant the right to be retained in the
employ of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an Affiliate may at any time dismiss the Participant or
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.
5. Legend on Certificates. To the extent provided by the Stockholders'
Agreement, the certificates representing the Shares purchased by exercise of the
Option shall
<PAGE> 83
5
contain a legend stating that they are subject to the Stockholders' Agreement
and may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which such Shares are listed, and any applicable Federal or state laws, and the
Committee may cause an additional legend or legends to be put on any such
certificates to make appropriate reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant
Notwithstanding the foregoing, the Participant may transfer all or any
portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate, and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer under an Option or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be addressed
to the Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering into
this Agreement the Participant agrees and acknowledges that the Participant has
received and read a copy of the Plan and the Stockholders' Agreement. The Option
is subject to the Plan and the
<PAGE> 84
6
Stockholders' Agreement. The terms and provisions of the Plan and the
Stockholders' Agreement as they may be amended from time to time in accordance
with their respective terms are hereby incorporated herein by reference. In the
event of a conflict between any term or provision contained herein and a term or
provision of the Plan or the Stockholders' Agreement, the applicable terms and
provisions of the Plan or the Stockholders' Agreement, as applicable, will
govern and prevail. In the event of a conflict between any term or provision of
the Plan and any term or provision of the Stockholders' Agreement, the
applicable terms and provisions of the Stockholders' Agreement will govern and
prevail.
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
------------------------------
Agreed and acknowledged as of the date
first above written:
- - ------------------------------
<PAGE> 1
SUBSCRIPTION AND TENDER AGREEMENT
SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999
(this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware
corporation (the "Company"), and the individual named on the signature page
hereto (the "Stockholder").
WHEREAS, concurrently herewith, the Company, Vestar/Calvary,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation
("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the
date hereof (the "Merger Agreement") pursuant to which, among other things,
Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $.01 per share, and Class A Common
Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common
Stock") and (y) to merge (the "Merger") into Sheridan;
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and make the Offer, the Company and Acquisition have required
the Stockholder and certain other Management Investors referred to below to
enter into this Agreement and the other Stockholder Documents referred to in the
Merger Agreement;
WHEREAS, the Stockholder has agreed, among other things, to
tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan
Common Stock owned by him as of the date hereof and all shares of Sheridan
Common Stock, if any, acquired by him after the date hereof and prior to the
expiration of the Offer (the "Tender Shares");
WHEREAS, on the terms and subject to the conditions hereof,
the Stockholder desires to subscribe for and acquire from the Company, and the
Company desires to issue and sell to the Stockholder, the number of shares of
common stock, par value $.01 per share, of the Company ("Common Stock") set
forth on Schedule I hereto, as hereinafter set forth;
WHEREAS, this Agreement is one of several agreements being
entered into by the Company on or after the date hereof with certain persons who
are or will be key employees of the Company or one of its subsidiaries
(collectively with the Stockholder, the "Management Investors");
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Subscription for and Purchase of Common Stock.
1.1. Purchase of Common Stock. Pursuant to the terms and
subject to the conditions set forth in this Agreement, the Stockholder hereby
subscribes for and agrees to purchase, and the Company hereby agrees to issue
and sell to the Stockholder, on the Closing
<PAGE> 2
2
Date (as defined in Section 1.3) the number of shares of Common Stock set forth
on Schedule I hereto at a price per share and for the aggregate amount in cash
(the "Purchase Price") set forth on Schedule I hereto.
1.2. Sales of Common Stock to Employees Only. Notwithstanding
anything in this Agreement to the contrary, the Company shall have no obligation
to issue, sell or deliver any shares of Common Stock to any person (i) who is
not a full-time employee of, or consultant to, the Company or any of its
subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in
which such issuance, sale or delivery to such person would constitute a
violation of the securities or "blue sky" laws of such jurisdiction.
1.3. The Closing. The closing (the "Closing") of the purchase
of Common Stock hereunder shall take place on the date (the "Closing Date") that
Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and
at such time as the Company shall direct on at least one business day's prior
notice to the Stockholder. The Closing shall occur at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such
other place as the parties may mutually agree. At the Closing, the Stockholder
(or the Stockholder's representative) shall deliver to the Company the Purchase
Price, payable by delivery of the amount set forth on Schedule I hereto, by
delivery of a certified check or by wire transfer in immediately available
funds.
1.4. Conditions to the Obligations of the Parties. (a) The
obligations of the Company under this Section 1 shall be subject to the
conditions that (i) the Stockholder shall have executed and delivered the
Stockholders Agreement dated as of the date hereof among the Company and its
stockholders party thereto in substantially the form attached hereto as Exhibit
A (the "Stockholders Agreement"), (ii) the representations and warranties of the
Stockholder in Section 2 of this Agreement shall be true and correct as of the
Closing Date in all material respects and (iii) the Stockholder shall not have
breached his obligations under Section 3 hereof.
(b) The obligations of the Stockholder under this Section 1
shall be subject to the conditions that (i) the Company shall have executed and
delivered the Stockholders Agreement and (ii) the representations and warranties
of the Company in Section 1.5 of this Agreement shall be true and correct as of
the Closing Date in all material respects.
1.5. Representations and Warranties of the Company. The
Company represents and warrants to the Stockholder as follows:
(a) the Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to execute and deliver this Agreement and the
Stockholders Agreement and to perform its obligations hereunder and thereunder.
The execution, delivery and performance by the Company of this Agreement and the
Stockholders Agreement has been duly authorized by all necessary corporate and
legal action by the Company, and no other corporate proceeding by the Company is
necessary for the execution, delivery and performance by the Company of this
Agreement or the Stockholders Agreement. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Company and, assuming
they are duly executed and delivered by the Stockholder,
<PAGE> 3
3
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
(b) the Common Stock to be issued to the Stockholder pursuant
to this Agreement, when issued and delivered in accordance with the terms
hereof, will be duly and validly issued and, upon receipt by the Company of the
Purchase Price therefor, will be fully paid and nonassessable with no personal
liability attached to the ownership thereof and will not be subject to any
preemptive rights under the Delaware General Corporation Law; and
(c) the execution, delivery and performance by the Company of
this Agreement and the Stockholders Agreement will not (i) conflict with the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or (iii) conflict with or violate any law, rule,
regulation, ordinance, writ, injunction, judgment or decree applicable to the
Company or any of its subsidiaries or by which any of their assets may be bound
or affected.
2. Representations, Warranties and Covenants of the Stockholder.
2.1. Residence and Competency; Power; Enforceability;
Noncontravention. The Stockholder is competent to and has sufficient capacity to
execute and deliver this Agreement and the Stockholders Agreement and to perform
his obligations hereunder and thereunder. This Agreement and the Stockholders
Agreement have been duly executed and delivered by the Stockholder.
Assuming the due execution and delivery of this Agreement and
the Stockholders Agreement by the Company, this Agreement and the Stockholders
Agreement constitute valid and binding obligations of the Stockholder,
enforceable against the Stockholder in accordance with their terms.
The execution, delivery and performance of this Agreement and
the Stockholders Agreement by the Stockholder will not (i) conflict with or
violate any law, rule, regulation, ordinance, writ, injunction, judgment or
decree applicable to the Stockholder or by which any of his assets may be bound
or affected or (ii) result in any breach of any terms or conditions of, or
constitute a default under, any contract, agreement or instrument to which the
Stockholder is a party or by which the Stockholder is bound.
2.2. Investment Intention; No Resales. The Stockholder hereby
represents and warrants that he is acquiring the Common Stock for investment
solely for his own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof. The Stockholder agrees and
acknowledges that he will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock,
or solicit any offers to purchase or otherwise acquire or pledge any shares of
Common Stock, unless such offer, transfer, sale, assignment, pledge,
hypothecation or other disposition complies with the provisions hereof and of
the Stockholders Agreement.
<PAGE> 4
4
2.3. Common Stock Unregistered. The Stockholder acknowledges
and represents that he has been advised by the Company that:
(a) the offer and sale of the Common Stock have not been and
will not be registered under the Securities Act;
(b) the Common Stock must be held indefinitely and the
Stockholder must continue to bear the economic risk of the investment in the
Common Stock unless the offer and sale of such Common Stock is subsequently
registered under the Securities Act and all applicable state securities laws or
an exemption from such registration is available;
(c) there is no established market for the Common Stock and it
is not anticipated that there will be any public market for the Common Stock in
the foreseeable future;
(d) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities of the Company,
and, except as set forth in the Stockholders Agreement, the Company has made no
covenant to make such Rule available;
(e) when and if shares of Common Stock may be disposed of
without registration under the Securities Act in reliance on Rule 144, such
disposition can be made only in limited amounts in accordance with the terms and
conditions of such Rule;
(f) if the Rule 144 exemption is not available, public offer
or sale of Common Stock without registration will require compliance with some
other exemption under the Securities Act;
(g) if any shares of Common Stock are at any time disposed of
in accordance with Rule 144, the Stockholder will deliver to the Company at or
prior to the time of such disposition an executed Form 144 (if required by Rule
144) and such other documentation as the Company may reasonably require in
connection with such sale;
(h) a restrictive legend in the form set forth in the
Stockholders Agreement shall be placed on the certificates representing Common
Stock; and
(i) a notation shall be made in the appropriate records of the
Company indicating that the Common Stock is subject to restrictions on transfer
and, if the Company should at some time in the future engage the services of a
securities transfer agent, appropriate stop-transfer instructions will be issued
to such transfer agent with respect to the Common Stock.
2.4. Additional Investment Representations. The Stockholder
represents and warrants that:
(a) the Stockholder's financial situation is such that he can
afford to bear the economic risk of holding the Common Stock for an indefinite
period of time, has adequate means for providing for his current needs and
personal contingencies, and can afford to suffer a complete loss of his
investment in the Common Stock;
<PAGE> 5
5
(b) the Stockholder's knowledge and experience in financial
and business matters are such that he is capable of evaluating the merits and
risks of the investment in the Common Stock, as contemplated by this Agreement;
(c) the Stockholder understands that the Common Stock is a
speculative investment which involves a high degree of risk of loss of his
investment therein, there are substantial restrictions on the transferability of
the Common Stock and, on the Closing Date and for an indefinite period following
the Closing, there will be no public market for the Common Stock and,
accordingly, it may not be possible for the Stockholder to liquidate his
investment in case of emergency, if at all;
(d) the terms of the Stockholders Agreement provide that in
the event that the Stockholder ceases to be an employee of Sheridan, the
Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their
designated affiliates have the right to repurchase the Common Stock at a price
which may, in certain circumstances, be less than the fair market value of such
stock;
(e) the Stockholder understands and has taken cognizance of
all the risk factors related to the purchase of Common Stock and, other than as
set forth in this Agreement, no representations or warranties have been made to
the Stockholder or his representatives concerning the Common Stock or the
Company, its subsidiaries or their prospects or other matters;
(f) in making his decision to purchase the Common Stock hereby
subscribed for, the Stockholder has relied upon independent investigations made
by him and, to the extent believed by the Stockholder to be appropriate, his
representatives, including his own professional, financial, tax and other
advisors;
(g) the Stockholder has been given the opportunity to examine
all documents and to ask questions of, and to receive answers from, the Company
and its representatives concerning the Company and its subsidiaries and the
terms and conditions of the purchase of the Common Stock and to obtain any
additional information, in each case as the Stockholder or his representatives
deems necessary;
(h) all information which the Stockholder has provided to the
Company and its representatives concerning the Stockholder and his financial
position is complete and correct as of the date of this Agreement; and
(i) the Stockholder is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act.
3. Agreements Relating to Tender Shares.
3.1. Agreement to Tender. The Stockholder hereby agrees to
validly tender pursuant to the Offer and not withdraw from the Offer all Tender
Shares; provided that the Merger Agreement has not been terminated.
3.2. Voting of Tender Shares. The Stockholder hereby agrees,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, to vote all Tender
<PAGE> 6
6
Shares (a) in favor of the adoption of the Merger Agreement and the approval of
the transactions contemplated thereby and (b) against any action or agreement
that would result in a breach of any representation, warranty, covenant or
agreement of the Company contained in the Merger Agreement or would impede,
interfere with, delay or prevent the consummation of the Merger or the purchase
of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall
not, so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, purport to vote (or execute a written consent with respect
to) Tender Shares other than in accordance with this Agreement or grant any
proxy or power of attorney with respect to Tender Shares, deposit any Tender
Shares into a voting trust, or enter into any agreement, arrangement or
understanding with any person (other than this Agreement), directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of Tender Shares, or agree to do any of the foregoing.
3.3. Disposition of Tender Shares. The Stockholder shall not,
so long as the Stockholder is required to tender Tender Shares pursuant to
Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise
encumber, any Tender Shares after the date hereof (except to tender Tender
Shares to Acquisition pursuant to the Offer), or agree to do any of the
foregoing.
3.4. Stop Transfer Order. The Stockholder hereby agrees to
cause Sheridan's transfer agent to be notified that there is a stop transfer
order (except to tender Tender Shares to Acquisition pursuant to the Offer) with
respect to all Tender Shares so long as the Stockholder is required to tender
Tender Shares pursuant to Section 3.1 hereof.
4. Options.
4.1. Adoption of Option Plan. Immediately following the
Effective Time (as defined in the Merger Agreement), the Company shall duly
adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially
the form attached hereto as Exhibit B.
4.2. Grant of Performance Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Performance Option Agreement in substantially the form attached hereto as
Exhibit C pursuant to which the Stockholder will be granted performance options
to purchase the number of shares of Common Stock set forth opposite his name on
Schedule II hereto at an exercise price equal to the per share price paid by the
Stockholder for Common Stock pursuant hereto. Following such due execution and
delivery thereof, the Performance Option Agreement shall constitute a valid and
binding obligation of each of the Company and the Stockholder, enforceable
against each of the Company and the Stockholder in accordance with its terms.
4.3. Grant of Time Options. Immediately following the
Effective Time, the Company and the Stockholder shall duly execute and deliver a
Time Option Agreement in substantially the form attached hereto as Exhibit D
pursuant to which the Stockholder will be granted time options to purchase the
number of shares of Common Stock set forth opposite his name on Schedule II
hereto at an exercise price equal to the per share price paid by the Stockholder
for Common Stock pursuant hereto. Following such due execution and delivery
thereof, the Time Option Agreement shall constitute a valid and binding
obligation of each of the Company and the Stockholder, enforceable against each
of the Company and the Stockholder in accordance with its terms.
<PAGE> 7
7
5. Miscellaneous.
5.1. Recapitalizations, Exchanges, Etc., Affecting Common
Stock. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to Common Stock, to any and all shares of capital
stock of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution for Common Stock, by reason of
any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Upon the occurrence of any of such events, amounts hereunder shall be
appropriately adjusted, in good faith, by the Board of Directors of the Company.
5.2. Stockholder's Employment by the Company. Nothing
contained in this Agreement shall be deemed to obligate the Company or any
subsidiary of the Company to employ the Stockholder in any capacity whatsoever
or to prohibit or restrict the Company (or any such subsidiary) from terminating
the employment, if any, of the Stockholder at any time or for any reason
whatsoever, with or without Cause (as defined in the Stockholders Agreement).
5.3. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. No assignment of any of
the rights or obligations of the Stockholder shall be permitted except as
expressly contemplated hereby; any purported assignment in violation of this
provision shall be null and void ab initio.
5.4. Amendment; Waiver. This Agreement may be amended only by
a written instrument signed by the parties hereto. No waiver by either party
hereto of any of the provisions hereof shall be effective unless set forth in a
writing executed by the party so waiving.
5.5. Governing Law. This Agreement shall be governed by and
construed in all respects under the laws of the State of New York. Any action to
enforce which arises out of or in any way relates to any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located
within the State of New York as provided by law; and the parties consent to the
jurisdiction of such court or courts located within the State of New York and to
service of process by registered mail, return receipt requested, or by any other
manner provided by New York law.
5.6. Notices. Any notices or communications permitted or
required hereunder shall be deemed sufficiently given if hand-delivered, or sent
by (x) registered or certified mail return receipt requested, (y) telecopy or
other electronic transmission service (to the extent receipt is confirmed) or
(z) by overnight courier, in each case to the parties at their respective
addresses and telecopy numbers set forth below, or to such other address of
which any party may notify the other party in writing.
<PAGE> 8
8
(a) If to the Company, to it at the following address:
Vestar/Calvary Holdings, Inc.
c/o Vestar Capital Partners
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Telecopy: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Telecopy: (212) 455-2502
(b) If to the Stockholder, to him at his address or telecopy
number as shown on the stock register of the Company.
5.7. Integration. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
5.8. Counterparts. This Agreement may be executed in two or
more counterparts, and by different parties on separate counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
5.9. Injunctive Relief. The Stockholder, on behalf of himself
and his permitted transferees, and the Company, on its own behalf and on behalf
of its successors and assigns, each acknowledges and agrees that a violation of
any of the terms of this Agreement will cause the other irreparable injury for
which adequate remedy at law is not available. Accordingly, it is agreed that
the Company or the Stockholder, as the case may be, shall be entitled to an
injunction, restraining order or other equitable relief to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which it or he may be
entitled at law or equity.
5.10. Rights to Negotiate. Nothing in this Agreement shall be
deemed to restrict or prohibit the Company from purchasing shares of Common
Stock from the Stockholder at any time upon such terms and conditions and at
such price as may be mutually agreed upon between the Company and the
Stockholder, whether or not at the time of such purchase circumstances exist
<PAGE> 9
9
which specifically grant the Company the right to purchase, or the Stockholder
the right to sell, shares of Common Stock pursuant to the terms of this
Agreement or the Stockholders Agreement.
5.11. Rights Cumulative; Waiver. The rights and remedies of
the Stockholder and the Company under this Agreement shall be cumulative and not
exclusive of any rights or remedies which either would otherwise have hereunder
or at law or in equity or by statute, and no failure or delay by either party in
exercising any right or remedy shall impair any such right or remedy or operate
as a waiver of such right or remedy, nor shall any single or partial exercise of
any power or right preclude such party's other or further exercise or the
exercise of any other power or right. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ James L. Elrod, Jr.
----------------------------------------
Name: James L. Elrod, Jr.
Title: President
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
STOCKHOLDER:
/s/ Gilbert L. Drozdow
-------------------------------------
Gilbert L. Drozdow
<PAGE> 12
GILBERT L. DROZDOW
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares Purchase Price Aggregate Purchase
of Common Stock Per Share Price Payable
- - --------------- --------- -------------
<S> <C> <C>
10,811** Per share price paid by Acquisition $100,001.75
for Sheridan Common Stock
pursuant to the Offer
</TABLE>
** Assuming a purchase price per share of $9.25.
<PAGE> 13
GILBERT L. DROZDOW
SCHEDULE II
<PAGE> 14
Exhibit (c) (2)
EXECUTION COPY
================================================================================
STOCKHOLDERS AGREEMENT
dated as of March 24, 1999
among
VESTAR/CALVARY HOLDINGS, INC.,
SHERIDAN HEALTHCARE, INC.,
VESTAR/CALVARY INVESTORS, LLC,
MITCHELL EISENBERG,
LEWIS D. GOLD,
MICHAEL F. SCHUNDLER,
JAY A. MARTUS
and
THE OTHER MANAGEMENT INVESTORS
================================================================================
<PAGE> 15
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.......................................................1
1.1 Defined Terms.....................................................1
1.2 Other Definitional Provisions; Interpretation....................10
SECTION 2. VOTING AGREEMENTS................................................11
2.1 Election of Directors............................................11
2.2 Other Voting Matters.............................................12
SECTION 3. TRANSFERS AND ISSUANCES..........................................12
3.1 Transfers to be Made Only as Permitted or
Required by this Agreement ......................................12
3.2 Permitted Transfers..............................................13
3.3 Effect of Void Transfers.........................................13
3.4 Legend on Securities.............................................13
3.5 Tag-Along Rights.................................................14
3.6 Public Offerings, etc. ..........................................15
3.7 Drag-Along Rights................................................16
3.8 Rights of First Refusal..........................................16
3.9 Participation Right..............................................18
3.10 Partial Transfers Following a Qualified Public Offering..........19
3.11 Partial Transfers to Cover Option-Related Tax Payments...........19
3.12 Transfers to Other Management Investors. .......................20
3.13 Call Right.......................................................20
3.14 Put Right........................................................22
SECTION 4. REGISTRATION RIGHTS..............................................24
4.1 Demand Registration..............................................24
4.2 Incidental Registration..........................................25
4.3 Registration Procedures..........................................27
4.4 Underwritten Offerings...........................................30
4.5 Preparation; Reasonable Investigation............................31
4.6 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants.....................................31
4.7 Expenses.........................................................32
4.8 Indemnification..................................................33
4.9 Participation in Underwritten Registrations......................34
4.10 Rule 144.........................................................35
4.11 Holdback Agreements..............................................35
4.12 Mezzanine Securities.............................................35
SECTION 5. MISCELLANEOUS....................................................36
5.1 Additional Securities Subject to Agreement.......................36
-i-
<PAGE> 16
5.2 Termination......................................................36
5.3 Injunctive Relief................................................36
5.4 Other Stockholders' Agreements...................................36
5.5 Amendments.......................................................36
5.6 Successors, Assigns and Transferees..............................36
5.7 Notices..........................................................36
5.8 Integration......................................................37
5.9 Severability.....................................................37
5.10 Counterparts.....................................................37
5.11 Governing Law....................................................38
5.12 Jurisdiction.....................................................38
5.13 Management Investors.............................................38
5.14 83(b) Election...................................................38
5.15 Management Investor Representative...............................38
5.16 Covenant Not to Compete..........................................39
5.17 Business Opportunities...........................................39
5.18 Confidentiality..................................................40
5.19 Effectiveness....................................................40
SCHEDULE 1 - Initial Other Management Investors
-ii-
<PAGE> 17
STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among
Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan
Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors,
LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis
D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior
Management Investors") and the other persons listed on Schedule 1 hereto
(collectively, together with the persons identified in the supplementary
agreements referred to in Section 5.13 hereof, the "Other Management
Investors"). The Senior Management Investors and the Other Management Investors
are collectively referred to herein as the "Management Investors".
W I T N E S S E T H :
WHEREAS, the Company, the Senior Management Investors and the Other
Management Investors listed on Schedule 1 hereto have entered into subscription
and tender agreements dated as of the date hereof (the "Subscription and Tender
Agreements");
WHEREAS, pursuant to the Subscription and Tender Agreements and on
the terms and subject to the conditions set forth therein, the Senior Management
Investors and the Other Management Investors listed on Schedule 1 hereto have
agreed to purchase shares of common stock of the Company;
WHEREAS, the Company, Sheridan, Vestar and the Management Investors
desire to make certain arrangements among themselves with respect to matters set
forth herein; and
WHEREAS, it is a condition to the consummation of the closings under
the Subscription and Tender Agreements that this Agreement (as defined below)
shall have been duly authorized, executed and delivered by each of the parties
hereto and be in full force and effect;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, terms defined in the
headings and the recitals shall have their respective assigned meanings, and the
following capitalized terms shall have the meanings ascribed to them below:
"Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company.
"Affiliate" means, with respect to any Person, (i) any Person that
directly or indirectly controls, is controlled by or is under common control
with, such Person, or (ii) any director, officer, partner or employee of such
Person or any Person specified in clause (i) above, or
(iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or
sibling of any Person specified in clause (i) or (ii) above.
<PAGE> 18
2
"Aggregate Investment" shall have the meaning ascribed to such term
in the definition of "Lapse Date."
"Agreement" means this Stockholders Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Applicable Percentage" shall mean (i) for the period from the
Closing Date through the day immediately preceding the first anniversary of the
Closing Date, 0%, (ii) for the period from the first anniversary of the Closing
Date through the date immediately preceding the second anniversary of the
Closing Date, 25%, (iii) for the period from the second anniversary of the
Closing Date through the day immediately preceding the third anniversary of the
Closing Date, 50%, (iv) for the period from the third anniversary of the Closing
Date through the day immediately preceding the fourth anniversary of the Closing
Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%.
"Business Day" means a day other than a Saturday, Sunday, holiday or
other day on which commercial banks in New York City or Miami, Florida are
authorized or required by law to close.
"Call Notice" shall have the meaning ascribed to such term in
Section 3.13(a).
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Management Investor and the Company or any of
its Subsidiaries which is in effect as of or after the Closing Date (as the same
may be amended in accordance with the terms thereof) or, if not defined therein
or if there shall be no such agreement, "Cause" shall exist if a Management
Investor has (i) committed an act of fraud, embezzlement, misappropriation or
breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary
of the Company or Sheridan or a felony involving the business, assets, customers
or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan or has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material breach
of any written confidentiality, non-compete, non-solicitation or business
opportunity covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Management Investor's duties to Sheridan,
the Company or any Subsidiary, including by committing a material breach of any
written covenant contained in any agreement entered into by the Management
Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or
Sheridan (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty (30)
days after delivery to the Management Investor by Sheridan of written notice
thereof; or (iv) breached the Management Investor's obligations pursuant to
Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's
substance abuse policy.
"Closing Date" shall have the meaning ascribed to such term in the
Subscription and Tender Agreements.
<PAGE> 19
3
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute. Any reference herein to a particular
provision of the Code shall mean, where appropriate, the corresponding provision
in any successor statute.
"Columbia" means the hospitals and ambulatory surgical facilities
owned by Columbia/HCA Healthcare, Inc.
"Common Stock" means the common stock of the Company or common
equity securities, or securities exchangeable or exercisable for or convertible
into common equity securities, of any Person into or for which Common Stock is
converted, exchanged or received in an Exit Transaction.
"Common Stock Equivalents" means any stock, warrants, rights, calls,
options or other securities exchangeable or exercisable for or convertible into
Common Stock.
"Company" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include any Person who, in connection
with an Exit Transaction, becomes the issuer of Common Stock.
"Competitive Enterprise" means any Person the activities, products
or services of which (A) are competitive with activities, products or services
of the Company or any of its Controlled Entities (as defined in the Merger
Agreement) in any state in which the Company is engaged or intends to engage in
the same or a similar business during the one year period preceding the
Management Investor's termination of employment or during the Non-Competition
Period, and (B) include (1) the provision of medical services, including without
limitation, the provision of anesthesia services, pain management services,
emergency room services, primary medical care services, neonatology,
perinatology and radiology services; (2) the provision of Payor Services; (3)
the provision of administrative services for medical services and Payor
Services, including without limitation, quality assurance services, utilization
management services, billing services, recruitment services and medical
management information services; or (4) the provision of services or products of
any nature to Columbia.
"Confidential Information" shall have the meaning ascribed to such
term in Section 5.18(a).
"Cost" means the purchase price per share of Common Stock paid by
the applicable Management Investor determined by dividing (x) the total purchase
price paid by such Management Investor on the date of purchase of such share by
(y) the number of shares of Common Stock purchased by such Management Investor
on such date, as adjusted by the Board of Directors of the Company in good faith
and on a consistent basis to reflect Exit Transactions and stock splits, stock
dividends, recapitalizations and other similar transactions.
"Cost Securities" shall have the meaning ascribed to such term in
Section 3.13(f).
"Custody Agreement and Power of Attorney" shall have the meaning
ascribed to such term in Section 4.2(c)
<PAGE> 20
4
"DGCL" shall have the meaning ascribed to such term in Section 5.11.
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Management Investor and the Company or
any of its Subsidiaries which is in effect as of or after the Closing Date (as
the same may be amended in accordance with the terms thereof) or, if not defined
therein or if there shall be no such agreement, as defined in Sheridan's
long-term disability plan as in effect from time to time or if, there shall be
no plan or if not defined therein, the Management Investor's becoming physically
or mentally incapacitated and consequent inability for a period of six (6)
months in any twelve (12) consecutive month period to perform the Management
Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the
Company.
"Effective Time" shall have the meaning ascribed to such term in the
Merger Agreement.
"Exit Transaction" shall have the meaning ascribed to such term in
the definition of "Lapse Date."
"Equity Interests" shall have the meaning ascribed to such term in
Section 3.9(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
"Fair Market Value" shall mean, as of any date of determination,
with respect to shares of Common Stock, (x) prior to a Qualified Public
Offering, the fair market value of the shares, disregarding any discount for
minority interest, restrictions on transfer of the shares or lack of
marketability of the shares, as determined in good faith and on a consistent
basis by the Board of Directors of the Company, giving due consideration to,
among other things, the earnings and other financial and operating information
of the Company, Sheridan and its Subsidiaries in recent periods, the future
prospects of the Company, Sheridan and its Subsidiaries, the general condition
of the securities markets and the fair market value of securities of companies
of a similar size and engaged in businesses similar to the business of the
Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public
Offering, the price per share of Common Stock equal to the average of the last
sales price of a share of Common Stock on each of the last five trading days
prior to the date of determination (the "FMV Calculation Period") on each
exchange on which the Common Stock may at the time be listed or, if there shall
have been no sales on any of such exchanges during the FMV Calculation Period,
the average of the closing bid and asked prices on each such exchange on each
day during the FMV Calculation Period or, if there are no such bid and asked
prices during the FMV Calculation Period, on the next preceding five dates on
which such bid and asked prices occurred or, if Common Stock shall not be so
listed, the average of the closing sales prices as reported by NASDAQ during the
FMV Calculation Period in the over-the-counter market.
"Family Group" shall have the meaning ascribed to such term in
Section 3.2(a).
<PAGE> 21
5
"Financing Default" shall mean an event which constitutes (or which
with notice or lapse of time or both would constitute) an event of default
(which event of default has not been cured or waived) under any of the following
as originally entered into or as they may be amended from time to time: (i) any
agreement or instrument under which indebtedness of any of the Company and its
Subsidiaries is outstanding as of the time of the aforementioned event, and any
extensions, renewals, refinancings or refundings thereof in whole or in part;
(ii) any provision of the Company's or any of its Subsidiaries' certificates of
incorporation or other organizational documents as in effect on the date hereof;
(iii) any amendment of, supplement to or other modification of any of the
instruments referred to in clauses (i) or (ii) above; and (iv) any of the
securities issued pursuant to or whose terms are governed by the terms of any of
the agreements set forth in clauses (i) and (ii) above, and any extensions,
renewals, refinancings or refundings thereof in whole or in part.
"FMV Calculation Period" shall have the meaning ascribed to such
term in the defined term "Fair Market Value".
"Good Reason" shall mean, if the Management Investor has entered
into an employment agreement with Sheridan, the Company or any of its
Subsidiaries which is in effect as of or after the Closing Date (as the same may
be amended in accordance with the terms hereof) the occurrence of such events
which, under the terms of such employment agreement, would expressly enable the
Management Investor to resign from employment and be treated under such
employment agreement as though the Management Investor's employment had been
terminated by the Company without "cause" or, if the employment agreement does
not include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of
Sheridan or the Company has failed to pay the Management Investor his salary;
(ii) the office where the Management Investor performs his duties is moved more
than 30 miles from where the Management Investor performed the Management
Investor's duties on the Closing Date; (iii) a substantial reduction of the
Management Investor's base salary (other than an across the board reduction
similarly affecting other comparable employees of Sheridan, the Company or its
Subsidiaries) or a substantial diminution of the Management Investor's duties,
which, in each case, has not been remedied within a reasonable time specified by
the Management Investor that is not less than thirty (30) days after delivery to
Sheridan of written notice describing the event constituting Good Reason.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Health Care Provider" means any physician, nurse, technician or
allied health care provider providing medical services on behalf of Sheridan or
any of its Affiliates on a full or part-time basis as an independent contractor
or consultant.
"Initial Call Period" shall have the meaning ascribed to such term
in Section 3.13(f).
<PAGE> 22
6
"Initial Public Offering" means the first Public Offering occurring
after the date hereof.
"Issuance" shall have the meaning ascribed to such term in Section
3.9(a).
"Junior Subordinated Note" shall have the meaning ascribed to such
term in Section 3.13(g).
"Lapse Date" means the earlier of (x) the fifth anniversary of the
Closing Date and (y) the date of the sale, exchange or other disposition by
Vestar and its Affiliates, in one or a series of transactions (including,
without limitation, by way of merger, reorganization, recapitalization,
consolidation, sale of capital stock or assets of Sheridan or any other
Subsidiary of the Company, or similar transaction that results in the
disposition, directly or indirectly, of the equity interests of Vestar and its
Affiliates (other than the Management Investors) in the Company) (collectively,
an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in
the Company immediately following the Closing Date plus (2) any additional
capital contributions to, or investments in, the Company made by any of Vestar
and its Affiliates after the Closing Date (clauses (1) and (2), collectively,
the "Aggregate Investment"); provided that, in the case of clause (y), either
(A) the consideration received by Vestar and its Affiliates in the Exit
Transaction for 70% or more of the Aggregate Investment is cash or securities
that are distributed in kind to the limited partners of Vestar Capital Partners
III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction
results in (i) designees of Vestar and its Affiliates not constituting a
majority of the Board of Directors (or analogous governing body) of the Company
and (ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding securities of the Company entitled to vote generally in the election
of directors (or members of an analogous governing body) of the Company.
"Majority Selling Stockholders" shall have the meaning ascribed to
such term in Section 4.7.
"Management Investors" shall have the meaning ascribed to such term
in the preamble to this Agreement.
"Management Investor Offeree" shall have the meaning ascribed to
such term in Section 3.8(a).
"Manager Investor Representative" shall have the meaning ascribed to
such term in Section 5.15.
"Management Investor's Transfer Group" shall have the meaning
ascribed to such term in Section 3.8(a).
"Measurement Date" shall have the meaning ascribed to such term in
Section 3.10.
<PAGE> 23
7
"Medical Customers" means patients, health maintenance
organizations, preferred payer organizations, third party payors, IPAs, PHOs,
MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals,
clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid
intermediaries.
"Merger" shall have the meaning ascribed to such term in the Merger
Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated as
of the date hereof among Sheridan, the Company and Acquisition, as the same may
be amended, supplemented or otherwise modified from time to time, pursuant to
which, among other things, Acquisition will merge into Sheridan, with Sheridan
constituting the surviving corporation.
"Mezzanine Securities" means securities of the Company, excluding
Common Stock, but including preferred stock and warrants to purchase Common
Stock, issued to any of Vestar and its Affiliates prior to the Effective Time,
and any securities into or for which such securities are exchangeable.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"No Call Notice" shall have the meaning ascribed to such term in
Section 3.13(e).
"No ROFR Notice" shall have the meaning ascribed to such term in
Section 3.8(g).
"Non-Competition Period" means with respect to each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a non-competition provision, the period commencing on the last day of
the Term of Employment and ending on the first anniversary of the last day of
the Term of Employment.
"Offeror" shall have the meaning ascribed to such term in Section
3.8(a).
"Option" means any option to acquire Common Stock or other capital
stock of the Company, including without limitation, all options granted under
the Company's 1999 Stock Option Plan.
"Option Shares" means all Common Stock or other capital stock of the
Company received by a Management Investor upon the exercise or other settlement
of an Option.
"Other Capital Stock" shall have the meaning ascribed to such term
in Section 3.9(a)(i).
"Other Capital Stock Equivalents" shall have the meaning ascribed to
such term in Section 3.9(a)(ii).
<PAGE> 24
8
"Other Management Investors" shall have the meaning ascribed to such
term in the preamble to this Agreement.
"Payor Services" means payor services in the area of managed care,
third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs,
capitation pools and other similar arrangements.
"Permitted Payment" shall have the meaning ascribed to such term in
Section 3.13(g).
"Permitted Transferee" has the meaning ascribed to such term in
Section 3.2(a).
"Person" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust, unincorporated
association, joint venture, Governmental Authority or other entity of any nature
whatsoever.
"Public Offering" means the sale of Securities to the public
pursuant to an effective registration statement filed under the Securities Act.
"Purchased Shares" shall mean, with respect to each Management
Investor, those shares of Common Stock that are purchased by the Management
Investor from the Company (as adjusted in good faith and on a consistent basis
by the Board of Directors of the Company to reflect Exit Transactions and stock
splits, stock dividends, recapitalizations and other similar transactions),
other than pursuant to the exercise of an Option.
"Put Notice" shall have the meaning ascribed to such term in Section
3.14(a).
"Qualified Public Offering" shall mean the sale of Common Stock to
the public after the Effective Time pursuant to an effective registration
statement filed under the Securities Act, which, together with any earlier
registered public sales of Common Stock under the Securities Act occurring after
the Effective Time, results in aggregate gross proceeds to the Company or its
stockholders, or both, of at least $50 million.
"Regulations" means the regulations promulgated under the Code.
"Request" shall have the meaning ascribed to such term in Section
4.1(a).
"Requesting Stockholder" shall have the meaning ascribed to such
term in Section 4.1(a).
"Right" shall have the meaning ascribed to such term in Section
3.9(a).
"Securities" means shares of Common Stock or Common Stock
Equivalents or other securities of the Company, other than (i) debt securities
that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each
case whether owned on the date hereof or hereafter acquired.
<PAGE> 25
9
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"SEC" means the Securities and Exchange Commission.
"Selling Stockholder" shall have the meaning ascribed to such term
in Section 4.3(c).
"Senior Management Investors" shall have the meaning ascribed to
such term in the preamble to this Agreement.
"Sheridan" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall also include its successors by means of a
merger, consolidation, reorganization, recapitalization or similar transaction.
"Stockholders" means Vestar, the Management Investors, and their
respective Permitted Transferees.
"Subscription and Tender Agreements" shall have the meaning ascribed
to such term in the recitals to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or fifty percent (50%) or more of the
equity interest therein, is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Tag Notice" shall have the meaning ascribed to such term in Section
3.5(b).
"Tagging Stockholder" shall have the meaning ascribed to such term
in Section 3.5(a).
"Term of Employment" means with respect to each Management Investor
who is not a Senior Management Investor and who is not a party to a written
employment agreement with the Company or any of its Subsidiaries that contains a
non-competition provision, any time during the period in which such Management
Investor is employed by the Company or any of its Subsidiaries.
"Third Party" means any Person other than the Company, the
Stockholders and their Affiliates.
"Transfer" means any transfer, sale, assignment, distribution,
exchange, mortgage, pledge, hypothecation or other disposition of any Securities
or any interest therein, including transfers by operation of law in connection
with a merger transaction or otherwise.
<PAGE> 26
10
"Transfer Notice" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Offer" shall have the meaning ascribed to such term in
Section 3.8(a).
"Transfer Securities" shall have the meaning ascribed to such term
in Section 3.8(a).
"Vestar" shall have the meaning ascribed to such term in the
preamble to this Agreement.
"Vested Purchased Shares" shall mean at any time, the number of
Purchased Shares initially acquired by a Management Investor (as adjusted in
good faith and on a consistent basis by the Board of Directors of the Company to
reflect Exit Transactions and stock splits, stock dividends, recapitalizations
and other similar corporate transactions) times the Applicable Percentage.
1.2 Other Definitional Provisions; Interpretation. (a) The words
"hereof", "herein", and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Subsection, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(b) The headings in this Agreement are included for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of this Agreement.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) For purposes of comparing the beneficial ownership of any Person
on the date of execution and delivery of this Agreement to the level of such
ownership at any later time, the level of ownership on such later date shall be
adjusted to eliminate the effect of any subdivision of the Common Stock, any
combination of the Common Stock, any issuance of Common Stock or Common Stock
Equivalents by reason of any reclassification (including, without limitation,
any reclassification in connection with a merger or consolidation), or any
dividend payable in Common Stock or Common Stock Equivalents.
SECTION 2. VOTING AGREEMENTS
2.1 Election of Directors. (a) Each Stockholder hereby agrees that,
so long as this Agreement shall remain in effect, such Stockholder will vote all
of the voting Securities owned or held of record by such Stockholder so as to
elect and, during such period, to continue in office a Board of Directors of the
Company and each Subsidiary of the Company (other than Subsidiaries of
Sheridan), each consisting solely of the following:
(i) 3 designees of Vestar (or its designated Permitted Transferees);
<PAGE> 27
11
(ii) 2 designees of the Management Investors (who shall be Mitchell
Eisenberg and Lewis Gold so long as each of them is an executive officer of
Sheridan); and
(iii) 2 persons to be designated by Vestar (or its designated
Permitted Transferees) in its sole discretion after consultation with the
Management Investor Representative.
(b) If at any time while this Agreement shall remain in effect
Vestar (or its designated Permitted Transferees) shall notify the other
Stockholders of its desire to remove, with or without cause, any director of the
Company or any of its Subsidiaries previously designated by it in accordance
with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities
owned or held of record by it so as to remove such director.
(c) If at any time while this Agreement shall remain in effect any
director previously designated by Vestar (or its Permitted Transferees) or the
Management Investors ceases to serve on the Board of Directors of the Company or
any Subsidiary of the Company (whether by reason of death, resignation, removal
or otherwise), the Stockholder or Stockholders who designated such director
shall be entitled to designate a successor director to fill the vacancy created
thereby on the terms and subject to the conditions of paragraph (a). Each
Stockholder agrees to vote all of the voting Securities owned or held of record
by such Stockholder so as to elect any such director.
(d) The parties hereto hereby agree that any individual designated
as a director of the Company or any Subsidiary of the Company may be removed for
cause (as reasonably determined by the Board of Directors of the Company, other
than such person) with or without the consent of the Stockholder which
designated such individual. No such removal of an individual designated pursuant
to this Section 2.1 shall affect the rights of any of the Stockholders to
designate a different individual pursuant to this Section 2.1.
(e) No fees shall be paid by the Company or any of its Subsidiaries
to any member of their respective Boards of Directors who are employees of
Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a
member of such Board of Directors; provided that the foregoing shall not limit
reimbursement of expenses in accordance with the expense reimbursement policy of
Sheridan and its Subsidiaries.
(f) The Stockholders hereby agree that Vestar (or its designated
Permitted Transferees) shall have sole discretion to determine the composition
of the Company's and its Subsidiaries' Board of Directors' committees (e.g.,
audit, compensation, etc.) through the rights granted to Vestar (or its
designated Permitted Transferees) pursuant to Section 2.1(a)(i).
2.2 Other Voting Matters. (a) Each Management Investor and their
Permitted Transferees hereby agrees that, until the occurrence of the Lapse
Date, such Stockholder will vote all of the Securities owned or held of record
by such Stockholder, either in person or by proxy, whether at a meeting of
stockholders or by executing a written consent, (i) consistent with the vote of
Vestar with respect to the shares of Common Stock beneficially owned by Vestar
and (ii) to ratify, approve and adopt any and all actions adopted or approved by
the Board of Directors of the Company.
<PAGE> 28
12
(b) In order to effectuate the provisions of Sections 2.1 and 2.2
hereof, (i) each of the Management Investors and their Permitted Transferees
hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be
Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan,
a proxy to vote at any annual or special meeting of Stockholders, or to take
action by written consent in lieu of such meeting with respect to, or to
otherwise take action in respect of, all of the Securities owned or held of
record by the Management Investors and their Permitted Transferees in connection
with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the
provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is
irrevocable and is coupled with an interest. To effectuate the provisions of
this Section 2, the Secretary of each of the Company and each Subsidiary of the
Company, or if there be no Secretary such other officer of the Company or such
Subsidiary as the Board of Directors of the Company or such Subsidiary may
appoint to fulfill the duties of the Secretary, shall not record any vote or
consent or other action contrary to the terms of this Section 2.
SECTION 3. TRANSFERS AND ISSUANCES
3.1 Transfers to be Made Only as Permitted or Required by this
Agreement.
(a) Each Stockholder hereby agrees that such Stockholder will not,
directly or indirectly, Transfer any Securities unless such Transfer complies
with the provisions hereof and (i) such Transfer is pursuant to an effective
registration statement under the Securities Act and has been registered under
all applicable state securities or "blue sky" laws or (ii) such Stockholder
shall have furnished the Company with a written opinion of counsel reasonably
satisfactory to the Company in form and substance reasonably satisfactory to the
Company to the effect that no such registration is required because of the
availability of an exemption from registration under the Securities Act and all
applicable state securities or "blue sky" laws.
(b) Each Management Investor and their Permitted Transferees hereby
agrees that, except for Transfers in connection with a Public Offering,
Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or
3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no
Transfer shall occur unless the transferee shall agree to become a party to, and
be bound to the same extent as its transferor by the terms of, this Agreement in
accordance with the provisions of Section 5.6 hereof.
(c) Each Management Investor and their Permitted Transferees hereby
agrees that such Stockholder shall not, without the prior written consent of
Vestar (which consent may be withheld by Vestar in its absolute discretion),
effect a Transfer prior to the Lapse Date, except for Transfers in connection
with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10,
3.11, 3.12, 3.13 or 3.14 hereof.
3.2 Permitted Transfers. (a) Any Management Investor may Transfer
any of the Securities beneficially owned by him (i) to his spouse, parent,
descendant, step-child, or step-grandchild or any executor, estate, guardian,
committee, trustee or other fiduciary acting as such solely on behalf or solely
for the benefit of any such spouse, parent, descendant, step-child or
step-grandchild (collectively, a "Family Group"), (ii) to any trust,
corporation, partnership or limited liability company, all of the beneficial
interests in which shall be held, directly or
<PAGE> 29
13
indirectly, by such Management Investor and/or one or more of the Family Group
of such Management Investor; provided, however, that during the period that any
such trust, corporation, partnership or limited liability company holds any
right, title or interest in any Securities, no person other than such Management
Investor or members of the Family Group of such Management Investor may be or
become beneficiaries, stockholders, general partners or members thereof, (iii)
which he has purchased on a stock exchange or in the over-the-counter market
after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan,
the Company, Vestar or any of Vestar's Affiliates. A transferee under this
Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee
of Vestar and its Affiliates in a Transfer made in accordance with this
Agreement, is referred to as a "Permitted Transferee."
(b) Notwithstanding anything in this Agreement to the contrary,
Vestar and its Affiliates shall be entitled from time to time, without
compliance with Section 3.5, to Transfer any or all of the Securities
beneficially owed by them to any of their Affiliates who agrees to become a
party to, and be bound to the same extent as its transferor by, the terms of
this Agreement.
3.3 Effect of Void Transfers. In the event of any purported Transfer
of any Securities in violation of the provisions of this Agreement, such
purported Transfer shall be void and of no effect and the Company shall not give
effect to such Transfer.
3.4 Legend on Securities. Each certificate representing Securities
issued to any Stockholder shall bear the following legend on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE
"COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND
THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE
COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF
ANY VOTING RIGHTS GRANTED BY THE SECURITIES."
<PAGE> 30
14
3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in
effect, with respect to any proposed Transfer by any of Vestar and its
Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock
permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the
Transferring Stockholder shall have the obligation, and each other Stockholder
(other than Vestar or any of its Affiliates) shall have the right, to require
the proposed transferee to purchase from each such other Stockholder having and
exercising such right (each a "Tagging Stockholder") a number of shares of
Common Stock up to the product (rounded up to the nearest whole number) of (i)
the quotient determined by dividing (A) the aggregate number of shares of Common
Stock beneficially owned on a fully diluted basis by such Tagging Stockholder
and sought by the Tagging Stockholder to be included in the contemplated
Transfer by (B) the aggregate number of shares of Common Stock beneficially
owned on a fully diluted basis by the Transferring Stockholder and all Tagging
Stockholders and sought by the Transferring Stockholder and all Tagging
Stockholders to be included in the contemplated Transfer and (ii) the total
number of shares of Common Stock proposed to be directly or indirectly
Transferred to the transferee in the contemplated Transfer, and at the same
price per share of Common Stock and upon the same terms and conditions
(including without limitation time of payment and form of consideration) as to
be paid and given to the Transferring Stockholder; provided that a Stockholder
shall not be deemed to beneficially own any shares underlying unexercised
Options unless such Options are vested and exercisable as of the date of the Tag
Notice described in Section 3.5(b); and provided further that in order to be
entitled to exercise its right to sell shares of Common Stock to the proposed
transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to
make to the transferee the same representations, warranties, covenants,
indemnities and agreements as the Transferring Stockholder agrees to make in
connection with the proposed Transfer of the shares of Common Stock of the
Transferring Stockholder (except that in the case of representations and
warranties pertaining specifically to the Transferring Stockholder a Tagging
Stockholder shall make the comparable representations and warranties pertaining
specifically to itself); and provided further that all representations,
warranties and indemnities shall be made by Tagging Stockholders severally and
not jointly and that the liability of the Transferring Stockholder and the
Tagging Stockholders (whether pursuant to a representation, warranty, covenant,
indemnification provision or agreement) shall be evidenced in writings executed
by them and the transferee and shall be borne by each of them on a pro rata
basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and
wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a)
shall convert or exercise or exchange such number of Common Stock Equivalents
into or for Common Stock as may be required therefor on or prior to the closing
date of such Transfer.
(b) The Transferring Stockholder shall give notice (a "Tag Notice")
to all relevant Stockholders of each proposed Transfer giving rise to the rights
of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at
least 45 days prior to the proposed consummation of such Transfer, setting forth
the name of the Transferring Stockholder, the number of shares of Common Stock
proposed to be so Transferred, the name and address of the proposed transferee,
the proposed amount and form of consideration, the other terms and conditions of
payment offered by the proposed transferee and the representations, warranties
and indemnities to be made or given by the Transferring Stockholders, and a
representation that the proposed transferee has been informed of the tag-along
rights provided for in this Section 3.5 and has agreed to purchase shares of
Common Stock in accordance with the terms hereof. The tag-along rights provided
by
<PAGE> 31
15
this Section 3.5 must be exercised by each Tagging Stockholder within 20 days
following receipt of the notice required by the preceding sentence, by delivery
of a written notice to the Transferring Stockholder indicating such Tagging
Stockholder's desire to exercise its rights and specifying the number of shares
of Common Stock it desires to sell. The Transferring Stockholder shall be
entitled under this Section 3.5 to Transfer to the proposed transferee the
number of shares of Common Stock equal to the excess of (x) the number referred
to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of
Common Stock set forth in the written notices, if any, delivered by the Tagging
Stockholders pursuant to the preceding sentence (up to the maximum number of
shares of Common Stock beneficially owned by such Tagging Stockholder required
to be purchased by the proposed transferee pursuant to the first sentence of
Section 3.5(a)). If the proposed transferee fails to purchase shares of Common
Stock from any Tagging Stockholder that has properly exercised its tag-along
rights, then the Transferring Stockholder shall not be permitted to make the
proposed Transfer, and any such attempted Transfer shall be void and of no
effect, as provided in Section 3.3 hereof.
(c) If any of the Tagging Stockholders exercise their rights under
Section 3.5(a), (i) the first shares of Common Stock to be transferred by such
Tagging Stockholder must be Vested Purchased Shares until such Tagging
Stockholder owns no more Vested Purchased Shares, then Option Shares until such
Tagging Stockholder owns no more Option Shares, then any remaining Purchased
Shares and (ii) the closing of the purchase of the Common Stock with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Transferring Stockholder's Common Stock.
3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7
shall not be applicable to offers and sales of Securities in a Public Offering
or, if such Securities previously have been sold in a Public Offering, pursuant
to Rule 144 under the Securities Act.
3.7 Drag-Along Rights. So long as this Agreement shall remain in
effect, if any of Vestar and its Affiliates receives an offer from a Third Party
to purchase all or any portion of the outstanding shares of Common Stock and
such offer is accepted by Vestar or such Affiliate, as the case may be, then
each other Stockholder hereby agrees that it will, if requested in writing not
less than 15 days' prior to the requested Transfer date by Vestar or such
Affiliate, Transfer a pro rata number of Securities beneficially owned by it to
such Third Party on the terms of the offer so accepted by Vestar or such
Affiliate, as the case may be; including making the same representations,
warranties, covenants, indemnities and agreements that Vestar or such Affiliate,
as the case may be, agrees to make (except that, in the case of representations
and warranties pertaining specifically to Vestar or such Affiliate, as the case
may be, each other Stockholder shall make the comparable representations and
warranties pertaining specifically to itself); provided that all
representations, warranties and indemnities shall be made by Stockholders
severally and not jointly and that the liability of Stockholders (whether
pursuant to a representation, warranty, covenant, indemnification provision or
agreement) shall be evidenced in writings executed by them and the transferee
and shall be borne by each of them on a pro rata basis; and provided further
that the terms of such offer applicable to any Common Stock beneficially owned
by such other Stockholder are no less favorable than the terms of such offer
applicable to the Common Stock beneficially owned by Vestar or such Affiliate,
as the case may be, and their respective Affiliates (including with respect to
the amount and nature of consideration and time of receipt
<PAGE> 32
16
thereof); and provided further that the first shares of Common Stock Transferred
by such other Stockholder must be Vested Purchased Shares until such other
Stockholder owns no more Vested Purchased Shares, then the Option Shares until
such other Stockholder owns no more Option Shares, then the portion of any
Options then held by such other Stockholder that are then vested and exercisable
(provided in the case of a Transfer of any such portion of the Options that the
Company shall have made acceptable arrangements with the transferee for the same
per share consideration to be paid to such Stockholder for such portion of the
Option as the transferee pays for the shares of Common Stock to be purchased by
the transferee, reduced by the aggregate option exercise price for the
transferred portion of the Options) until no portion of the Options held by such
Stockholder is vested and exercisable, and then any remaining Purchased Shares.
3.8 Rights of First Refusal. (a) Each Management Investor and their
Permitted Transferees agree that if, prior to a Qualified Public Offering, such
Management Investor or any of its Permitted Transferees receives a bona fide
offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer
Securities") then owned by such Management Investor or such Management
Investor's Permitted Transferees (collectively, the "Management Investor's
Transfer Group") from any Person (the "Offeror") which any member of the
Management Investor's Transfer Group wishes to accept (the "Management Investor
Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be
reduced to writing and shall provide a written notice (the "Transfer Notice") of
such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice
shall also contain an irrevocable offer to sell the Transfer Securities to the
Company, Vestar and Sheridan (in the manner set forth below) at a price equal to
the price contained in, and upon the same terms and conditions as the terms and
conditions contained in, the Transfer Offer and shall be accompanied by a true
and complete copy of the Transfer Offer (which shall identify the Offeror, the
Transfer Securities, the price contained in the Transfer Offer and the other
material terms and conditions of the Transfer Offer). At any time within 30 days
after the date of the receipt by the Company, Vestar and Sheridan of the
Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan
or any of their designated Affiliates shall have the right and option to
purchase all (but not less than all) of the Transfer Securities covered by the
Transfer Offer either (i) for the same consideration and on the same terms and
conditions as the Transfer Offer or (ii) if the Transfer Offer includes any
consideration other than cash, then, at the sole option of the Company, Vestar,
Sheridan, or any of their designated Affiliates, as applicable, at the
equivalent all cash price, determined in good faith by a majority of the members
of the Company's Board of Directors. If the option referred to in the preceding
sentence is exercised, on or prior to the 60th day after the date of receipt by
the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar,
Sheridan or any other designated Affiliates, as applicable, shall execute and
deliver to the Management Investor Offeree a written agreement in the form
included in the Transfer Offer, including representations, warranties, covenants
and indemnities, if the Transfer Offer included such written agreement, and
shall pay the relevant cash consideration, by delivering a certified bank check
or checks in (or, if the Management Investor Offeree so elects at least three
business days prior to the closing date in a writing specifying the Management
Investor Offeree's bank account and other wire Transfer instructions, by wire
transferring) the appropriate amount and shall deliver the relevant non-cash
consideration to the Management Investor Offeree against delivery at the
principal office of Sheridan of certificates or other instruments representing
the Transfer Securities so purchased, appropriately endorsed by the Management
Investor Offeree. If at the end of such 30-day period,
<PAGE> 33
17
the Company, Vestar and Sheridan have not delivered written notice of exercise
by them of their right to purchase the Transfer Securities pursuant to this
Section 3.8 or if at the end of such 60-day period, the Company, Vestar and
Sheridan have not tendered the purchase price for such shares in the manner set
forth above, the Management Investor Offeree shall be free for a period of 90
days from the end of such 30- or 60-day period, as applicable, to Transfer not
less than all of the Transfer Securities to the Offeror on the terms and
conditions set forth in the Transfer Notice (including the execution and
delivery of any written agreement in the form included in the Transfer Offer).
Such Offeror shall agree in a writing in form and substance reasonably
satisfactory to the Company to become a party hereto and be bound to the same
extent as the Management Investor Offeree by the provisions hereof. Promptly
after such sale, the Management Investor Offeree shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion and time
of completion of such sale and of the terms thereof as may reasonably be
requested by the Company. If for any reason any Management Investor Offeree does
not Transfer Transfer Securities to the Offeror on the terms and conditions set
forth in the Transfer Notice, or if any Management Investor Offeree wishes to
sell the Transfer Securities on terms other than those set forth in the Transfer
Notice, the provisions of this Section 3.8 shall again be applicable to the
Transfer Securities.
(b) The closing of the purchase of the Transfer Securities by the
Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate,
upon exercise of its right of first refusal pursuant to Section 3.8(a) shall
take place at the principal office of Sheridan on a date specified by the
Company, Sheridan, Vestar or any of their designated Affiliates, as applicable,
no later than the last day of the 60-day period after the giving of the Transfer
Notice.
(c) Notwithstanding anything in this Section 3.8 to the contrary,
(i) neither Vestar nor any of its designated Affiliates may exercise a right of
first refusal under this Section 3.8 unless Vestar has received a written notice
from the Company indicating the Company's intention not to exercise such right
of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its
designated Affiliates may exercise a right of first refusal under this Section
3.8 unless Sheridan has received a No ROFR Notice from Vestar.
3.9 Participation Right. (a) Except as otherwise set forth in
Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or
any of its Affiliates:
(i) additional shares of Common Stock or Common Stock Equivalents or
capital stock of the Company other than Common Stock and Common Stock
Equivalents ("Other Capital Stock"); or
(ii) any warrants, rights, calls, options or other securities
exchangeable for or exercisable or convertible into Other Capital Stock or
any other security other than Common Stock, Common Stock Equivalents or
Other Capital Stock entitled to participate in the Company's profits
(collectively, "Other Capital Stock Equivalents");
unless, prior to such Issuance, the Company notifies each Management Investor in
writing of the proposed Issuance and grants to such notified party or, at the
election of such notified party, one of its Affiliates the right (the "Right")
to subscribe for and purchase such additional shares of Common Stock or Other
Capital Stock or such additional shares or units of
<PAGE> 34
18
Common Stock Equivalents or Other Capital Stock Equivalents (collectively,
"Equity Interests") so issued at the same price and upon the same terms and
conditions (including, in the event such Equity Interests are issued as a unit
together with other securities, the purchase of such other securities) as issued
in the Issuance such that:
(A) in the case of an Issuance in which shares of Common Stock or
Common Stock Equivalents are to be issued, immediately after giving effect
to the Issuance and exercise of the Right (including, for purposes of this
calculation, the issuance of shares of Common Stock upon conversion,
exchange or exercise of any Common Stock Equivalent issued in the Issuance
or subject to the Right), the shares of Common Stock beneficially owned by
the notified party and its Affiliates on a fully diluted basis (rounded to
the nearest whole share) shall represent the same percentage of the
aggregate number of shares of Common Stock outstanding on a fully diluted
basis as was beneficially owned by such notified party and its Affiliates
and Vestar and its Affiliates, respectively, immediately prior to the
Issuance; provided, that for purposes of the calculations required by this
Section 3.9(a)(A) notified parties and their Affiliates shall not be
deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance; and
(B) in the case of an Issuance in which shares of Other Capital
Stock or Other Capital Stock Equivalents are to be issued, the notified
party and its Affiliates shall have the Right to acquire a percentage of
the Other Capital Stock or Other Capital Stock Equivalents to be issued in
the Issuance equal to the percentage of shares of Common Stock on a fully
diluted basis that was beneficially owned by such notified party and its
Affiliates and Vestar and its Affiliates, respectively, immediately prior
to the Issuance; provided, that for purposes of the calculations required
by this Section 3.9(a)(B) notified parties and their Affiliates shall not
be deemed to beneficially own any Shares underlying unexercised Options
unless such Options are vested and exercisable as of the date of the
Issuance.
(b) The Right may be exercised by the notified party at any time by
written notice to the Company received by the Company within 20 days after the
date on which such notified party receives notice from the Company of the
proposed Issuance, and the closing of the purchase and sale pursuant to the
exercise of the Right shall occur at least 15 days (but not later than 180 days)
after the Company receives notice of the exercise of the Right and prior to or
concurrently with the closing of the Issuance. Notwithstanding the foregoing
provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of
Equity Interests pro rata to all holders of Common Stock and Other Capital
Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common
Stock Equivalent or any Other Capital Stock Equivalent outstanding on the
Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management
Investor or any other employee of the Company pursuant to a management stock
subscription agreement or stock option or other employee benefit plan of the
Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board
of Directors of the Company or a Subsidiary of the Company designated by Vestar
and its Permitted Transferees who is not a director, officer, general partner or
employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as
such to the
<PAGE> 35
19
Board of Directors of the Company or a Subsidiary of the Company, (v) any
Issuance pursuant to a bona fide underwritten public offering pursuant to an
effective registration statement under the Securities Act or (vi) any Issuance
of Mezzanine Securities.
3.10 Partial Transfers Following a Qualified Public Offering. Each
Senior Management Investor may, during the one year period commencing on the
second anniversary of the first Qualified Public Offering and during each one
year period commencing on each succeeding anniversary of such Qualified Public
Offering thereafter (each such anniversary being referred to as a "Measurement
Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option
Shares beneficially owned by such Senior Management Investor on the applicable
Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this
provision shall not permit a Senior Management Investor who has already
Transferred (pursuant to any provision of this Agreement which permits Transfers
by Senior Management Investors) the cumulative number of shares of Common Stock
he or she otherwise would be entitled to Transfer pursuant to this Section 3.10
to Transfer any additional shares of Common Stock.
3.11 Partial Transfers to Cover Option-Related Tax Payments.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by the Management Investor with Good Reason, and
thereafter such Management Investor exercises Options which would otherwise
expire unless so exercised, such Management Investor may Transfer Securities;
provided, that the aggregate purchase price for the Securities being Transferred
shall not exceed the total amount of taxes which such Management Investor's tax
consultant has reasonably advised will be due and owing in respect of such tax
year by such Management Investor as a result of such Management Investor
exercising such Options; and provided, further, that such Transfer shall be
subject to the right of first refusal provisions of Section 3.8.
3.12 Transfers to Other Management Investors.
If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then at
any time after the conclusion of the Second Call Period, such Management
Investor may Transfer all or any portion of the Securities beneficially owned by
him to one or more of the other Management Investors; provided, however, that if
the proposed purchase price for such Securities which is offered to the other
Management Investors is less than the relevant purchase price under Section
3.13(c), such proposed Transfer hereunder by such Management Investor shall be
subject to the right of first refusal provisions of Section 3.8.
3.13 Call Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated by the applicable employer for Cause, then within 180 days of the
employment termination date, and subject to Section 3.13(e), the Company,
Vestar, Sheridan or any of their designated Affiliates shall have the option to
purchase all or any portion of the Purchased Shares and Option Shares held by
such
<PAGE> 36
20
Management Investor and such Management Investor's Permitted Transferees by
providing written notice of the relevant election (including the number of
Securities to be purchased) to the applicable Management Investor and Permitted
Transferees (a "Call Notice"). The purchase price per share for such Securities
will be the lower of Cost and Fair Market Value on the date of termination of
employment.
(b) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated due to the death
or Disability of such Management Investor, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
such Securities will be the greater of Cost and Fair Market Value on the date of
termination of employment.
(c) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is terminated by the applicable
employer without Cause or by such Management Investor with Good Reason, then
within the later of (1) 180 days of the employment termination date (and, with
respect to any Option Shares, within 180 days after the date of the last
exercise of any Options, if later) or (2) ten days after the applicable
Management Investor has rescinded his election to sell all or a portion of his
Purchased Shares which were to be paid for with a Junior Subordinated Note in
connection with the put right set forth in Section 3.14, and subject to Section
3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates
shall have the option to purchase all or any portion of the Purchased Shares and
Option Shares held by such Management Investor and such Management Investor's
Permitted Transferees by providing a Call Notice to the applicable Management
Investor and Permitted Transferees. The purchase price per share for (A) the
Applicable Percentage of the Purchased Shares and for all Option Shares will be
the greater of (x) Cost or (y) Fair Market Value on the date of termination of
employment and (B) the remaining portion of such Purchased Shares, if any, will
be Cost.
(d) If, at any time prior to the Lapse Date, a Management Investor's
employment with the Company and its Subsidiaries is voluntarily terminated by
such Management Investor without Good Reason, then within 180 days of the
employment termination date (and, with respect to any Option Shares, within 180
days after the date of the last exercise of any Options, if later), and subject
to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated
Affiliates shall have the option to purchase all or any portion of the Purchased
Shares and Option Shares held by such Management Investor and such Management
Investor's Permitted Transferees by providing a Call Notice to the applicable
Management Investor and Permitted Transferees. The purchase price per share for
the Applicable Percentage of the Purchased Shares and for all Option Shares will
be Fair Market Value on the date of termination of employment and the purchase
price for the remaining portion of the Purchased Shares, if any, will be the
lower of (x) Cost or (y) Fair Market Value on the date of termination of
employment; provided that if such voluntary termination without Good Reason
occurs prior to the second anniversary of the Closing
<PAGE> 37
21
Date, the Purchase Price per share for all Option Shares will be the lower of
(x) Cost or (y) Fair Market Value on the date of termination of employment.
(e) Notwithstanding anything in this Section 3.13 to the contrary
(i) neither Vestar nor any of its designated Affiliates may exercise a call
right under this Section 3.13 unless Vestar has received written notice from the
Company indicating the Company's intention not to exercise such call right (a
"No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates
may exercise a call right under this Section 3.13 unless Sheridan has received a
No Call Notice from Vestar.
(f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair
Market Value on the date of the Management Investor's termination of employment
and none of the Company, Vestar or Sheridan exercises the call right with
respect to the Purchased Shares and Option Shares which it could have purchased
at Cost (the "Cost Securities") during the 180 day period commencing on such
date of termination (the "Initial Call Period"), then the Company, Vestar or
Sheridan (subject once again to the provisions of Section 3.13(e) with respect
to the Second Call Period regardless of whether No Call Notices were issued in
the Initial Call Period) will have an additional right to call the Cost
Securities during the 90-day period commencing on the eighteen-month anniversary
of the Management Investor's termination of employment (the "Second Call
Period") by providing a Call Notice to the applicable Management Investor. The
purchase price per share for such Securities pursuant to Section 3.13(c)(A) will
be the greater of (x) Fair Market Value on the date of termination of employment
and (y) Fair Market Value on the first day of the Second Call Period and the
purchase price for such Securities pursuant to Section 3.13(c)(B) will be the
lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call
Period.
(g) The completion of the purchases pursuant to Sections 3.13(a),
(b), (c), (d) and (f) shall take place at the principal office of Sheridan on or
prior to the thirtieth (30th) day after the giving of the applicable Call
Notice. The repurchase price for the Securities shall be paid by delivery to the
appropriate Management Investor or Permitted Transferee of a certified bank
check or checks in the appropriate amount payable to the order of such
Management Investor or Permitted Transferee unless Sheridan is the party
exercising such call right and a Financing Default exists or, after giving
effect to such payment would exist, which prohibits such cash payment, in which
case the portion of the cash payment so prohibited shall be made, to the extent
permitted by any loan agreement, indenture or other agreement to which Sheridan
is a party, by Sheridan's delivery of a junior subordinated promissory note
(which shall be subordinated and subject in right of payment to the prior
payment of all indebtedness of Sheridan including, without limitation, any debt
outstanding under any credit agreement and any modifications, renewals,
extensions, replacements and refunding of all such indebtedness) of Sheridan (a
"Junior Subordinated Note") in a principal amount equal to the amount of the
purchase price which cannot be paid in cash, payable in five equal annual
installments commencing on the first anniversary of the issuance thereof and
bearing interest payable annually in arrears at the publicly announced prime
rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all
or any of the purchase price for any of the Securities with a Junior
Subordinated Note, and then resells such Securities for cash, the portion of the
accrued but unpaid interest and, to the extent of any excess, the outstanding
principal amount of the Junior Subordinated Note that is equal to the amount of
such cash proceeds shall become immediately due and payable, unless and to the
extent
<PAGE> 38
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that payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, the payment
of all or any portion of the amounts outstanding under such Junior Subordinated
Note can be repaid by Sheridan without giving rise to a Financing Default (a
"Permitted Payment"), Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment (accrued interest first and then principal) in cash to the applicable
Management Investor or Permitted Transferee by delivery of a certified bank
check to the order of such Management Investor or Permitted Transferee. If
Sheridan cannot pay the purchase price for any Securities subject to a Call
Notice in cash or a Junior Subordinated Note due to any circumstance described
in this subparagraph 9(g), Sheridan shall not be permitted to exercise the
applicable call right.
3.14 Put Right. (a) If, at any time prior to the Lapse Date, a
Management Investor's employment with the Company and its Subsidiaries is
terminated due to the death or Disability of such Management Investor, then
within 180 days of the employment termination date such Management Investor and
the members of the Family Group of such Management Investor shall have the
option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one
occasion from such Management Investor and the members of the Family Group of
such Management Investor, all or any portion of the Purchased Shares held by
such Management Investor and the members of the Family Group of such Management
Investor by providing written notice of his or their election (including the
number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase
price per share for such Securities will be Fair Market Value on the date of
termination of employment.
(b) If, at any time prior to the Lapse Date, a Senior Management
Investor's employment with the Company and its Subsidiaries is terminated by the
applicable employer without Cause or by such Senior Management Investor with
Good Reason, then within 180 days of the employment termination date such Senior
Management Investor shall have the option to sell to Sheridan, and Sheridan
shall be obligated to purchase, on one occasion from such Senior Management
Investor a number of Purchased Shares held by such Senior Management Investor
the aggregate purchase price for which under this Section 3.14(b) is not in
excess of the aggregate purchase price paid by such Senior Management Investor
on the Closing Date for all Securities purchased by such Senior Management
Investor on the Closing Date. Such Senior Management Investor shall exercise
such put right by providing a Put Notice to Sheridan. The purchase price per
share for (A) the Applicable Percentage of such Purchased Shares will be Fair
Market Value on the date of termination of employment and (B) the remaining
portion of such Purchased Shares, if any, will be the lower of Cost and Fair
Market Value on the date of termination of employment.
(c) The completion of the purchase pursuant to Section 3.14 (a)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice. The purchase price for the Purchased
Shares included in the Put Notice shall be paid by delivery to the appropriate
Management Investor or the members of his Family Group, as applicable, of a
certified bank check or checks in the appropriate amount payable to the order of
such Management Investor or the members of his Family Group, as applicable,
unless a Financing Default exists or, after giving effect to such payment would
exist, which prohibits such cash
<PAGE> 39
23
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the purchase price with a Junior Subordinated Note, Sheridan
shall give the notice of the principal amount of such note at least 15 days
prior to such purchase, and the relevant Management Investor shall have ten days
thereafter to rescind his election to sell all or a portion of his Purchased
Shares to be paid for with such note. If Sheridan pays all or any portion of the
purchase price for any Purchased Shares with a Junior Subordinated Note, and
then resells such Purchased Shares for cash, the portion of the accrued but
unpaid interest and, to the extent of any excess, the outstanding principal
amount of the Junior Subordinated Note that is equal to the amount of such cash
proceeds shall become immediately due and payable, unless and to the extent that
payment of such accrued interest or outstanding principal under the Junior
Subordinated Note would constitute or result in a Financing Default. If at any
time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted
Payment can be made, Sheridan shall, as promptly as practicable but not later
than thirty days after such payment becomes permissible, pay the Permitted
Payment in cash to the applicable Management Investor or the members of his
Family Group, as applicable, by delivery of a certified bank check to the order
of such Management Investor or the members of his Family Group, as applicable.
(d) The completion of the purchase pursuant to Sections 3.14 (b)
shall take place at the principal office of Sheridan on or prior to the sixtieth
day after the giving of the Put Notice, at which time at least fifty percent of
the purchase price shall be paid. If Sheridan elects to pay less than all of the
purchase price initially, the remaining portion of the purchase price shall be
paid in one payment on or prior to the first anniversary of the giving of the
Put Notice. The purchase price for the Purchased Shares included in the Put
Notice shall be paid by delivery to the appropriate Senior Management Investor
of a certified bank check or checks in the appropriate amount payable to the
order of such Senior Management Investor unless a Financing Default exists or,
after giving effect to such payment would exist, which prohibits such cash
payment, in which case the portion of the cash payment so prohibited shall be
made, to the extent permitted by any loan agreement, indenture or other
agreement to which Sheridan is a party, by Sheridan's delivery of a Junior
Subordinated Note in a principal amount equal to the amount of the purchase
price which cannot be paid in cash, payable in five equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually in arrears at the publicly announced prime rate of Chase
Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or
any portion of the initial payment of the purchase price with a Junior
Subordinated Note, Sheridan shall give the Senior Management Investor notice of
the principal amount of such note at least 15 days prior to such purchase, and
the relevant Senior Management Investor shall have ten days thereafter to
rescind his election to sell all or a portion of his Purchased Shares to be paid
for with such note. If Sheridan pays all or any portion of the purchase price
for any Purchased Shares with a Junior Subordinated Note, and then resells such
Purchased Shares for cash, the portion of the accrued but unpaid interest and,
to the extent of any excess, the outstanding principal amount of the Junior
Subordinated Note that is equal to the
<PAGE> 40
24
amount of such cash proceeds shall become immediately due and payable, unless
and to the extent that payment of such accrued interest or outstanding principal
under the Junior Subordinated Note would constitute or result in a Financing
Default. If at any time after the issuance by Sheridan of a Junior Subordinated
Note, a Permitted Payment can be made, Sheridan shall, as promptly as
practicable but not later than thirty days after such payment becomes
permissible, pay the Permitted Payment (accrued interest first and then
principal) in cash to the applicable Senior Management Investor by delivery of a
certified bank check to the order of such Senior Management Investor.
SECTION 4. REGISTRATION RIGHTS
4.1 Demand Registration.
(a) Common Stock Request. Upon the written request (a "Request") of
Vestar or its designated Permitted Transferees that the Company effect the
registration under the Securities Act of all or part of the shares of Common
Stock owned or to be acquired upon conversion, exercise or exchange of Common
Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting
Stockholder"), the Company will use its best efforts to effect the registration
under the Securities Act of such shares.
(b) Registration Statement Form. Registrations under this Section
4.1 shall be on such appropriate registration form of the SEC as shall (i) be
selected by the Company and (ii) permit the disposition of the Common Stock
being registered in accordance with the intended method or methods of
disposition specified in the request for such registration. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the underwriters, the Requesting Stockholder and the
Company, is required to be included.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, or
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
Governmental Authority for any reason not attributable to the Requesting
Stockholder or any of its Affiliates and has not thereafter become effective.
(d) Limitations on Registration on Request. Notwithstanding anything
in this Section 4.1 to the contrary, in no event will (i) the Company be
required to effect more than one registration pursuant to Section 4.1(a) within
any 180 day period or (ii) the Requesting Stockholder be entitled to more than
five registrations in the aggregate pursuant to Section 4.1(a); unless in the
case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of
the costs and expenses of each such additional registration (unless either (x) a
registration so requested is not deemed to have been effected pursuant to
Section 4.1(c) for a reason not attributable to the Requesting Stockholder or
any of its Affiliates or (y) the number of shares of Common Stock sought to be
included by such Requesting Stockholder in such registration is reduced by more
than 25% pursuant to the provisions of Section 4.2(b)).
<PAGE> 41
25
4.2 Incidental Registration.
(a) Right to Include Common Stock and Common Stock Equivalents. If
the Company at any time proposes to register any shares of Common Stock (or
Common Stock Equivalents, including any registration of Common Stock Equivalents
pursuant to the exercise of rights under Section 4.2(b)) under the Securities
Act (except registrations on such form(s) solely for registration of Common
Stock or Common Stock Equivalents in connection with any employee benefit plan
or dividend reinvestment plan or a merger or consolidation), including
registrations pursuant to Section 4.1(a), whether or not for sale for its own
account, it will each such time as soon as practicable give written notice of
its intention to do so to all the Stockholders. Upon the written request (which
request shall specify the total number of shares of Common Stock or Common Stock
Equivalents intended to be disposed of by such Stockholder) of any Stockholder
made within 30 days after the receipt of any such notice (15 days if the Company
gives telephonic notice with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such shorter
period of time is required because of a planned filing date), the Company will
use all reasonable efforts to effect the registration under the Securities Act
of all Common Stock held or to be acquired upon conversion, exercise or exchange
of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be
registered by the Company, Common Stock Equivalents) by the Stockholders which
the Company has been so requested to register for sale in the manner initially
proposed by the Company; provided that the Company shall not be obliged to
register any Common Stock Equivalents which are not of the same class, series
and form as the Common Stock Equivalents proposed to be registered by the
Company. If the Company thereafter determines for any reason not to register or
to delay registration of the Common Stock or Common Stock Equivalents (provided,
however, that in the case of any registration pursuant to Section 4.1(a), such
determination shall not violate any of the Company's obligations under Section
4.1 or any other provision of this Agreement), the Company may, at its election,
give written notice of such determination to the Stockholders and (A) in the
case of a determination not to register, shall be relieved of the obligation to
register such Common Stock or Common Stock Equivalents in connection with such
registration (without prejudice, however, to any right the Requesting
Stockholder may have to request that such registration be effected as a
registration under Section 4.1(a)) and (B) in the case of a determination to
delay registering, shall be permitted to delay registering any Common Stock or
Common Stock Equivalents of a Stockholder for the same period as the delay in
registration of such other securities. No registration effected under this
Section 4.2(a) shall relieve the Company of any obligation to effect a
registration upon a Common Stock Request under Section 4.1(a).
(b) Priority in Incidental Registration. In a registration pursuant
to this Section 4.2, if the managing underwriter of such underwritten offering
shall inform the Company and the relevant Stockholders by letter of its belief
that the number of shares of Common Stock or Common Stock Equivalents, as the
case may be, to be included in such registration would adversely affect its
ability to effect such offering, then the Company will be required to include in
such registration only that number of shares of Common Stock or Common Stock
Equivalents which it is so advised should be included in such offering. Shares
of Common Stock or Common Stock Equivalents proposed by the Company to be
registered for issuance by the Company shall have the first priority in a
registration pursuant to Section 4.2(a) and all other shares of Common
<PAGE> 42
26
Stock or Common Stock Equivalents to be registered (whether or not requested to
be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given
second priority without preference among the relevant holders. If less than all
of the Stockholder's shares of Common Stock or Common Stock Equivalents are to
be registered, each such Stockholder's shares of Common Stock or Common Stock
Equivalents shall be included in the registration pro rata based on the total
number of shares of Common Stock or Common Stock Equivalents sought to be
registered by each Stockholder (as opposed to the Company).
(c) Custody Agreement and Power of Attorney. Upon delivering a
request under this Section 4.2, Management Investors and their Permitted
Transferees will, if requested by the Company, execute and deliver a custody
agreement and power of attorney in form and substance reasonably satisfactory to
the Company and one of the director designees referred to in Section 2.1(a)(i)
with respect to such Stockholder's shares of Common Stock or Common Stock
Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement
and Power of Attorney"). The Custody Agreement and Power of Attorney will
provide, among other things, that the Stockholder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein (who shall be
reasonably satisfactory to one of the director designees referred to in Section
2.1(a)(i)) a certificate or certificates representing such shares of Common
Stock or Common Stock Equivalents (duly endorsed in blank by the registered
owner or owners thereof or accompanied by duly executed stock powers in blank)
and irrevocably appoint said custodian and attorney-in-fact as such
Stockholder's agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on such Stockholder's behalf
with respect to the matters specified therein. Such Stockholder also agrees to
execute such other agreements as the Company may reasonably request to further
evidence the provisions of this Section 4.2.
4.3 Registration Procedures. In connection with the Company's
obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all
reasonable efforts to effect such registration and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use all reasonable efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (i) 180 days following the date on which such
registration statement is declared effective or (ii) the termination of the
offering being made thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
shares of Common Stock or Common Stock Equivalents, as the case may be, covered
by such registration statement until such Common Stock or Common Stock
Equivalents have been sold or such lesser period of time as the Company, any
seller of such Common Stock or Common Stock Equivalents or any underwriter is
required under the Securities Act to deliver a prospectus in accordance with the
intended methods of disposition by the sellers
<PAGE> 43
27
of such Common Stock or Common Stock Equivalents set forth in such registration
statement or supplement to such prospectus;
(c) furnish to each Stockholder which owns shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by such registration
statement (the "Selling Stockholders") and the managing underwriter, if any, at
least one executed original of the registration statement and such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, as may reasonably be requested by
such Selling Stockholder;
(d) use all reasonable efforts (i) to register or qualify all shares
of Common Stock or Common Stock Equivalents covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions where an
exemption is not available as the Selling Stockholders shall reasonably request,
(ii) to keep such registration or qualification in effect for so long as such
registration statement remains in effect and (iii) to take any other action
which may be reasonably necessary or advisable to enable the Selling
Stockholders to consummate the disposition in such jurisdictions of such Common
Stock or Common Stock Equivalents; provided that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, subject itself to taxation in any such jurisdiction or take
any action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Stockholders and the managing underwriter, if
any, promptly, and confirm such advice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to a registration statement or related prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the registered
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or information
becoming known which requires the making of any changes in a registration
statement or related prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (vi) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v)
above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document
<PAGE> 44
28
so that, as thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(h) use its best efforts to furnish to the Selling Stockholders a
signed counterpart, addressed to the Selling Stockholders and the underwriters,
if any, of (A) an opinion of counsel for the Company, and (B) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of the accountant's letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities (and dated the dates such opinions and comfort
letters are customarily dated) and, in the case of the accountant's letter, such
other financial matters, and in the case of the legal opinion, such other legal
matters, as the Selling Stockholders or the underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Selling Stockholders
an earnings statement satisfying the provisions of Section 10(a)(i) of the
Securities Act and Rule 158 promulgated thereunder, no later than 90 days after
the end of any 12-month period beginning after the effective date of a
registration statement pursuant to which shares of Common Stock or Common Stock
Equivalents are sold, which statement shall cover such 12-month period;
(j) cooperate with the Selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock or Common Stock Equivalents to
be sold; and enable such shares of Common Stock or Common Stock Equivalents to
be in such denominations and registered in such names as the Selling
Stockholders or the managing underwriters, if any, may request at least two
Business Days prior to any sale of shares of Common Stock or Common Stock
Equivalents to the underwriters;
(k) use its best efforts to cause the shares of Common Stock or
Common Stock Equivalents, as the case may be, covered by the applicable
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Selling
Stockholder(s) or the underwriters, if any, to consummate the disposition of
such shares of Common Stock or Common Stock Equivalents;
(l) cause all shares or units of Common Stock or Common Stock
Equivalents, as the case may be, covered by the registration statement to be
listed on each securities exchange, if any, on which securities of such class,
series and form issued by the Company, if any, are then listed if requested by
the managing underwriters, if any, or the holders of a majority of the shares or
units of Common Stock or Common Stock Equivalents covered by the registration
statement and entitled hereunder to be so listed;
<PAGE> 45
29
(m) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
(n) as soon as practicable prior to the filing of any document which
is to be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement) provide copies
of such document to counsel to the Selling Stockholders and to the managing
underwriters, if any, and make the Company's representatives available for
discussion of such document and consider in good faith making such changes in
such document prior to the filing thereof as counsel for such Selling
Stockholders or underwriters may reasonably request.
The Company may require each Selling Stockholder to furnish to the
Company such information regarding such Selling Stockholder and the distribution
of such securities as the Company may from time to time reasonably request in
writing in order to comply with the Securities Act.
The Selling Stockholders agree that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue
disposition pursuant to such registration statement of any shares of Common
Stock or Common Stock Equivalents, as the case may be, covered by such
registration statement or prospectus until their receipt of the copies of the
supplemented or amended prospectus relating to such registration statement or
prospectus or until they are advised in writing by the Company that the use of
the applicable prospectus may be resumed (and the period of such discontinuance
shall be excluded from the calculation of the period specified in clause (x) of
Section 4.3(a)) and, if so directed by the Company, will deliver to the Company
(at the Company's expense, except as otherwise provided in Section 4.1(d)) all
copies, other than permanent file copies then in their possession, of the
prospectus covering such securities in effect at the time of receipt of such
notice. The Selling Stockholders agree to furnish the Company a signed
counterpart, addressed to the Company and the underwriters, if any, of an
opinion of counsel for the Selling Stockholders covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of selling stockholder's counsel
delivered to the underwriters in underwritten public offerings of securities
(and dated the dates such opinions are customarily dated) and such other legal
matters as the Company or the underwriters may reasonably request.
4.4 Underwritten Offerings.
(a) Demand Underwritten Offerings. In any underwritten offering
pursuant to a registration requested under Section 4.1, the Company will use its
best efforts to enter into an underwriting agreement for such offering with the
underwriters selected by the Requesting Stockholder, such agreement and
underwriters to be reasonably satisfactory in form and substance to the Company,
the Requesting Stockholder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type. The Selling Stockholders who
hold shares of Common Stock to be
<PAGE> 46
30
distributed by such underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
them and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to their
obligations. The Company may require that any or all of the representations and
warranties by, and the other agreements on the part of the Selling Stockholders
to and for the benefit of such underwriters shall also be made to and for the
benefit of the Company with due regard to the amount of Securities being sold by
such Selling Stockholder and the nature of such representations, warranties and
agreements and the underwriting.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any shares of its Common Stock or Common Stock Equivalents
under the Securities Act as contemplated by Section 4.2 and such Securities are
to be distributed by or through one or more underwriters, the Company and the
Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents
to be distributed by such underwriters in accordance with Section 4.2 hereof
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of them and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to their obligations. The Company may, at its option, require that any
or all of the representations and warranties by, and the other agreements on the
part of the Selling Stockholders to and for the benefit of such underwriters
shall also be made to and for the benefit of the Company with due regard to the
amount of Securities being sold by such Selling Stockholder and the nature of
such representations, warranties and agreements and the underwriting.
4.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Stockholders, the
underwriters and their respective counsels and accountants a reasonable
opportunity (but such Persons shall not have the obligation) to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the SEC, and, to the extent practicable, each amendment thereof or
supplement thereto, and, subject to the execution and delivery of a customary
confidentiality agreement, will give each of them such access to its books and
records (to the extent customarily given to the underwriters of the Company's
securities), and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary to conduct a reasonable investigation
within the meaning of the Securities Act.
4.6 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause shares of Common Stock and Common Stock Equivalents to be
registered under the Securities Act are subject to each of the following
limitations, conditions and qualifications:
<PAGE> 47
31
(a) The Company shall be entitled to postpone for a reasonable
period of time the filing or effectiveness of, or suspend the rights of Selling
Stockholders to make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (i) 15 days after the cessation of the circumstances described in
clauses (A) and (B) below or (ii) 120 days after the date of the determination
of the Board of Directors of the Company referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (i) of Section 4.3(a)) if the Board of Directors of
the Company determines in good faith that (A) there is a material undisclosed
development in the business or affairs of the Company (including any pending or
proposed financing, recapitalization, acquisition or disposition), the
disclosure of which at such time could be adverse to the Company's interests or
(B) the Company has filed a registration statement with the SEC, such
registration statement has not yet been declared effective, the Company is using
its reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such registration would be adversely affected. If the Company shall so delay the
filing of a registration statement, it shall, as promptly as possible, notify
the Selling Stockholders of such determination, and the Selling Stockholders
shall have the right (x) in the case of a postponement of the filing or
effectiveness of a registration statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (y) in the case of a suspension of the right
to make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company shall not be required hereby to include shares of
Common Stock or Common Stock Equivalents in a registration statement if, in the
written opinion (to be issued to, and relied upon by, the Stockholders seeking
inclusion) of outside counsel to the Company of recognized standing in
securities law matters, the beneficial owners of such Common Stock or Common
Stock Equivalents seeking registration would be free to sell all of such shares
of Common Stock or Common Stock Equivalents within the current calendar quarter
without registration under Rule 144 under the Securities Act.
(c) The Company's obligations shall be subject to the obligations of
the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish
all information and materials and to take any and all actions as may be required
under applicable federal and state securities laws and regulations to permit the
Company to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such registration statement.
(d) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
4.7 Expenses. The Company and Sheridan jointly and severally agree
to pay all reasonable out-of-pocket costs and expenses incurred in connection
with each registration of Common Stock or Common Stock Equivalents pursuant to
this Agreement, including, without limitation, the reasonable fees and
disbursements of a single firm of outside counsel retained by Selling
Stockholders which beneficially own a majority of the total number of shares or
units of Common Stock or Common Stock Equivalents being registered by Selling
Stockholders (the
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32
"Majority Selling Stockholders"), and any and all filing fees payable to the
SEC, fees with respect to filings required to be made with stock exchanges, the
NASDAQ and the NASD, fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of a single firm of
outside counsel for the underwriters or the Majority Selling Stockholders in
connection with blue sky qualifications of the Common Stock or Common Stock
Equivalents being registered and determination of its eligibility for investment
under the laws of such jurisdictions as the Selling Stockholders may designate),
printing expenses, fees and disbursements of counsel and accountants of the
Company, including costs associated with comfort letters, and fees and expenses
of other Persons retained by the Company, but excluding underwriters' expenses
(including discounts, commissions or fees of underwriters and expenses included
therein, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the securities being registered or
legal expenses of any Person other than the Company and the Selling
Stockholders) but including the fees and expenses of any qualified independent
underwriter required to participate in such registration pursuant to applicable
law or the requirements of the NASD. The Company and its Subsidiaries shall, in
any event in all cases, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), and the expense of securities law liability
insurance and rating agency fees, if any.
4.8 Indemnification.
(a) Indemnification by the Company. In connection with any
registration pursuant hereto in which shares of Common Stock or Common Stock
Equivalents are to be disposed of, the Company shall indemnify and hold
harmless, to the full extent permitted by law, each holder of such Common Stock
or Common Stock Equivalents to be disposed of and, when applicable, its
officers, directors, agents and employees and each Person who controls such
holder (within the meaning of the Securities Act or the Exchange Act) against
all losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, including, without
limitation, any loss, claim, damage, liability or expense resulting from the
failure to keep a prospectus current, except insofar as the same (i) are caused
by or contained in any information relating to such holder furnished in writing
to the Company by such holder expressly for use therein or (ii) are caused by
such holder's failure to deliver a copy of the current prospectus simultaneously
with or prior to such sale after the Company has furnished such holder with a
sufficient number of copies of such prospectus correcting such material
misstatement or omission or (iii) arise in respect of any offers to sell or
sales made during any period when a holder is required to discontinue sales
under Section 4.3(e) (and after such holder has received in writing the notice
contemplated by Section 4.3(e)). The Company shall also indemnify underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each person
who controls such Persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the holders of
such Common Stock or Common Stock Equivalents to be disposed of, and shall enter
into an indemnification agreement with such Persons containing such terms, if
requested.
<PAGE> 49
33
(b) Indemnification by Stockholders. In connection with each
registration statement effected pursuant hereto in which shares of Common Stock
or Common Stock Equivalents are to be disposed of, each Selling Stockholder
shall, severally but not jointly, indemnify and hold harmless, to the full
extent permitted by law, the Company, each other Selling Stockholder and their
respective directors, officers, agents and employees and each Person who
controls the Company and each other Selling Stockholder (within the meaning of
the Securities Act or the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in such registration
statement or prospectus or preliminary prospectus or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue statement or omission relates to such Selling Stockholder and is
contained in any information furnished in writing by such Selling Stockholder or
any of its Affiliates to the Company expressly for inclusion in such
registration statement or prospectus. In no event shall the liability of any
Selling Stockholder hereunder be greater in amount than the dollar amount of the
proceeds actually received by such Selling Stockholder upon the sale of the
securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder shall give prompt notice to the indemnifying party of
any claim with respect to which it shall seek indemnification and shall permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the indemnifying party shall have agreed to pay such fees or expenses, or (ii)
the indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (iii) in the opinion of
outside counsel to such Person there may be one or more legal defenses available
to such Person which are different from or in addition to those available to the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). If such defense is not assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent (but such consent shall not be unreasonably withheld). No
indemnified party shall be required to consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a written
release in form and substance reasonably satisfactory to such indemnified party
from all liability in respect of such claim or litigation. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim shall
not be obligated to pay the fees and expenses of more than one firm of counsel
(and, if necessary, local counsel) for all parties indemnified by such
indemnifying party with respect to such claim, unless in the written opinion of
outside counsel to an indemnified party a conflict of interest as to the subject
matter exists between such indemnified party and another indemnified party with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel for such indemnified party.
<PAGE> 50
34
(d) Contribution. If for any reason the indemnification provided for
herein is unavailable to an indemnified party or is insufficient to hold it
harmless as contemplated hereby, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of any Selling Stockholder for
such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received by such Selling Stockholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
4.9 Participation in Underwritten Registrations. No Stockholder or
Permitted Transferee may participate in any underwritten registration hereunder
unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of
Common Stock or Common Stock Equivalents on the basis provided in and in
compliance with any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7
under the Exchange Act, and (b) completes and executes all questionnaires,
appropriate and limited powers of attorney, escrow agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements; provided that all such documents shall be
consistent with the provisions hereof.
4.10 Rule 144. The Company hereby covenants that after it has filed
(and such registration statement has become effective) a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of
Common Stock, the Company will file in a timely manner all reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any Stockholder, make publicly
available other information so long as necessary to permit sales by such
Stockholder under Rule 144 under the Securities Act) and will take such further
action as any Stockholder may reasonably request to the extent required from
time to time to enable such Stockholder to sell shares of Common Stock under
Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management
Investor shall Transfer shares of Common Stock under Rule 144 unless expressly
permitted to do so by the terms of this Agreement.
4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any
of its shares of Common Stock or Common Stock Equivalents is included in a
registration statement filed by the Company in connection with an underwritten
public offering it shall not effect any public sale or distribution of shares of
Common Stock or Common Stock Equivalents during the 30 days prior to or the 180
day period beginning on the effective date of such registration statement
(except as part of such registration) if and to the extent reasonably requested
in writing (with reasonable prior notice) by the managing underwriter of the
underwritten public offering.
(b) The Company agrees not to effect any primary public sale or
distribution of any Common Stock or Common Stock Equivalents, as the case may
be, during the 10 days prior to and the 180 day period beginning on the
effective date of any registration statement in which
<PAGE> 51
35
any Stockholder is participating in connection with an underwritten public
offering of Common Stock or Common Stock Equivalents, as the case may be, if and
to the extent reasonably requested in writing (with reasonable prior notice) by
the managing underwriter of the underwritten public offering.
4.12 Mezzanine Securities. Notwithstanding anything to the contrary
herein, the Company may grant registration rights to holders of Mezzanine
Securities which are more, as or less favorable to such holders than the
registration rights of the parties hereto. To the extent that Mezzanine
Securities consist of Common Stock or Common Stock Equivalents, holders of
Mezzanine Securities may be given the right by the Company to participate in
registrations as if such holders were Stockholders, and the Company shall not be
obliged hereunder to comply with any provision of this Section 4 in respect of a
registration of Mezzanine Securities.
SECTION 5. MISCELLANEOUS
5.1 Additional Securities Subject to Agreement. Each Stockholder
agrees that any other Securities which it shall hereafter acquire by means of a
stock split, stock dividend, distribution, exercise of stock options, or
otherwise (other than Mezzanine Securities or pursuant to a Public Offering or
Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the
same extent as if held on the date hereof.
5.2 Termination. Except as otherwise provided herein, this Agreement
shall terminate, and thereby become null and void, as to any particular
Securities, on the date on which they are sold in a Public Offering or are sold
pursuant to Rule 144 under the Securities Act (unless such Securities are
reacquired by a Stockholder).
5.3 Injunctive Relief. The Stockholders and their Permitted
Transferees acknowledge and agree that a violation of any of the terms of this
Agreement will cause the Stockholders and their Permitted Transferees
irreparable injury for which adequate remedy at law is not available.
Accordingly, it is agreed that each Stockholder and Permitted Transferee shall
be entitled to an injunction, restraining order or other equitable relief to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction in the
United States or any state thereof, in addition to any other remedy to which
they may be entitled at law or equity.
5.4 Other Stockholders' Agreements. None of the Stockholders shall
enter into any stockholder agreement or other arrangement of any kind with any
Person with respect to any Securities which is inconsistent with the provisions
of this Agreement or which may impair its ability to comply with this Agreement.
5.5 Amendments. This Agreement may be amended only by a written
instrument signed (a) by Vestar, so long as it or its Affiliates own Securities,
and (b) by Stockholders other than Vestar and its Affiliates which own on a
fully diluted basis Securities representing at least a majority of the voting
power represented by all Securities outstanding on a fully diluted basis and
owned by all Stockholders other than Vestar and its Affiliates.
<PAGE> 52
36
5.6 Successors, Assigns and Transferees. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their Permitted Transferees and their respective successors, each of
which Permitted Transferees shall agree, in a writing in form and substance
satisfactory to the Company and the owners on a fully diluted basis of
Securities representing at least a majority of the voting power represented by
all Securities outstanding on a fully diluted basis and owned by all
Stockholders, to become a party hereto and be bound to the same extent as its
transferor hereby, provided that no Stockholder may assign to any Permitted
Transferee any of its rights hereunder other than in connection with a Transfer
to such Permitted Transferee of Securities in accordance with the provisions of
this Agreement.
5.7 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or when delivered by a
recognized courier or, in the case of telecopy notice, when received, addressed
as follows to the parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
if to the Company, Sheridan or Vestar, to it:
c/o Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Facsimile: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Facsimile: (212) 455-2502
if to any other Stockholder, to such Stockholder at such
Stockholder's address or telecopy number set forth in the books
and records of the Company.
5.8 Integration. This Agreement and the documents referred to herein
or delivered pursuant hereto contain the entire understanding of the parties
with respect to the subject matter hereof and thereof. There are no agreements,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof and thereof other than those expressly set forth herein
and therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE> 53
37
5.9 Severability. If one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
5.11 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
except for matters directly within the purview of the General Corporation Law of
the State of Delaware (the "DGCL"), which shall be governed by the DGCL.
5.12 Jurisdiction. Any action to enforce, which arises out of or in
any way relates to, any of the provisions of this Agreement may be brought and
prosecuted in such court or courts located within the States of New York as
provided by law; and the parties consent to the jurisdiction of such court or
courts located within the States of New York and to service of process by
registered mail, return receipt requested, or by any other manner provided by
New York law.
5.13 Management Investors. Each employee or director of the Company
or any of its Subsidiaries who becomes party to a stock subscription agreement
or option agreement with any of the Company and its Subsidiaries after the date
hereof shall become a party hereto and shall be bound hereby. The Company shall
not issue any securities to an employee or director of the Company or any of its
Subsidiaries unless he or she enters into a supplementary agreement with the
Company agreeing to be bound by the terms hereof in the same manner as the other
Management Investors. Each such supplementary agreement shall become effective
upon its execution by the Company and such employee or director, and it shall
not require the signature or consent of any other party hereto. Such
supplementary agreement may modify some of the terms hereof as they effect such
employee or director; provided that the modified terms shall be no more
favorable to such employee or director than the terms set forth herein.
5.14 83(b) Election. Promptly after the Closing Date, each
Management Investor shall, with respect to all Securities beneficially owned by
such Management Investor, make a timely election under Section 83(b) of the Code
in accordance with applicable Regulations thereunder.
5.15 Management Investor Representative. Each Management Investor
hereby designates and appoints (and each Permitted Transferee of each such
Management Investor shall be deemed to have so designated and appointed)
Mitchell Eisenberg, with full power of substitution (the "Management Investor
Representative") as the representative of each such Person to perform all such
acts as are required, authorized or contemplated by this Agreement to
<PAGE> 54
38
be performed by any such Person and hereby acknowledges that the Management
Investor Representative shall be the only Person authorized to take any action
so required, authorized or contemplated by this Agreement by each such Person.
Each such Person further acknowledges that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive the
death or incapacity of such Person. Each such Person hereby authorizes (and each
Permitted Transferee shall be deemed to have authorized) the other parties
hereto to disregard any notice or other action taken by such Person pursuant to
this Agreement on any action so taken or any notice given by the Management
Investor Representative and are and will be entitled and authorized to give
notices only to the Management Investor Representative for any notice
contemplated by this Agreement to be given to any such Person. A successor to
the Management Investor Representative may be chosen by Management Investors
which own on a fully diluted basis Securities representing at least a majority
of the voting power represented by all Securities outstanding on a fully diluted
basis and owned by all Management Investors, provided that written notice
thereof is given by the successor to the Management Investor Representative to
the Company. Whenever any action or consent (but not any forbearance) is
required to be taken or given by the Management Investors, the action or consent
of the Management Investor Representative shall be considered the act or consent
of all the Management Investors, and Vestar and the Company shall be protected
in relying on such act or consent.
5.16 Covenant Not to Compete. (a) Each Management Investor who is
not a Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
non-competition provision hereby covenants and agrees that, except as provided
below, during the Term of Employment and the Non-Competition Period, the
Management Investor shall not, without the express written consent of the
Company, directly or indirectly, engage in any activity which is, or participate
or invest in or assist (whether as owner, part-owner, stockholder, partner,
director, officer, trustee, employee, agent, independent contractor or
consultant, or in any other capacity) any Competitive Enterprise, except that
the Management Investor may make passive investments in a Competitive Enterprise
the shares of which are publicly traded if such investment constitutes less than
one percent of the equity of such enterprise. Without implied limitation, the
forgoing covenant shall include hiring or attempting to hire for or on behalf of
any such Competitive Enterprise any officer or other employee of Sheridan or any
Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee
to terminate his or her relationship or employment with Sheridan or any
Affiliate of Sheridan, soliciting for or on behalf of any such Competitive
Enterprise any client or customer (including any Medical Customer) of Sheridan
or any Affiliate of Sheridan, and diverting to any Person, any client or
business opportunity of Sheridan or any Affiliate of Sheridan.
(b) In furtherance and not in limitation of the foregoing
restrictions, during the Term of Employment and the Non-Competition Period, each
Management Investor who is not a Senior Management Investor and who is not a
party to a written employment agreement with the Company or any of its
Subsidiaries that contains a non-competition provision shall not devote any time
to consulting, lecturing or engaging in other self-employment or employment
activities without the prior written consent of Sheridan.
(c) This Section 5.16 shall survive the termination of this
Agreement.
<PAGE> 55
39
5.17 Business Opportunities. Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a business
opportunities provision agrees, while he is employed by any of the Company and
its Subsidiaries, to offer or otherwise make known or available to the Company
or any Subsidiary, as directed by the Company and without additional
compensation or consideration, any business prospects, contracts or other
business opportunities that he may discover, find, develop or otherwise have
available to him in any field in which the Company or any of its Affiliates is
engaged, and further agrees that any such prospects, contracts or other business
opportunities shall be the property of the Company.
5.18 Confidentiality. (a) Each Management Investor who is not a
Senior Management Investor and who is not a party to a written employment
agreement with the Company or any of its Subsidiaries that contains a
confidentiality provision acknowledges that the Management Investor has and will
necessarily become informed of, and have access to, certain valuable and
confidential information of the Company and its Affiliates, including, without
limitation, trade secrets, technical information, plans, lists of patients,
data, records, fee schedules, computer programs, manuals, processes, methods,
intangible rights, contracts, agreements, licenses, personnel information and
the identity of health care providers (collectively, the "Confidential
Information"), and that the Confidential Information, even though it may be
contributed, developed or acquired in whole or in part by the Management
Investor, is the Company's exclusive property to be held by the Management
Investor in trust and solely for the Company's benefit. Accordingly, except as
required by law, the Management Investor shall not, at any time, either during
or subsequent to the Term of Employment, use, reveal, report, publish, copy,
transcribe, Transfer or otherwise disclose to any person, corporation or other
entity, any of the Confidential Information without the prior written consent of
the Company, except to responsible officers and employees of the Company and its
Subsidiaries and other responsible persons who are in a contractual or fiduciary
relationship with the Company or one of its Subsidiaries and except for
information which legally and legitimately is or becomes of general public
knowledge from authorized sources other than the Management Investor.
(b) Upon the termination of the Term of Employment, each Management
Investor who is not a Senior Management Investor and who is not a party to a
written employment agreement with the Company or any of its Subsidiaries that
contains a confidentiality provision shall promptly deliver to the Company all
property and possessions of the Company and its Subsidiaries, including all
drawings, manuals, letters, notes, notebooks, reports, copies, deliverable
Confidential Information and all other materials relating to the Company's and
its Subsidiaries' business which are in the Management Investor's possession or
control.
5.19 Effectiveness. This Agreement shall become effective on the
Closing Date.
<PAGE> 56
40
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
SHERIDAN HEALTHCARE, INC.
By: /s/ Mitchell Eisenberg
---------------------------------
Name: Mitchell Eisenberg
VESTAR/CALVARY INVESTORS, LLC
By: VESTAR CAPITAL PARTNERS III, L.P.,
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By: /s/ Robert L. Rosner
---------------------------------
Name: Robert L. Rosner
<PAGE> 57
/s/ Mitchell Eisenberg
--------------------------------------
MITCHELL EISENBERG
/s/ Lewis D. Gold
--------------------------------------
LEWIS D. GOLD
/s/ Michael F. Schundler
--------------------------------------
MICHAEL F. SCHUNDLER
/s/ Jay a. Martus
--------------------------------------
JAY A. MARTUS
/s/ Gilbert L. Drozdow
--------------------------------------
GILBERT L. DROZDOW
<PAGE> 58
SCHEDULE 1
INITIAL OTHER
MANAGEMENT INVESTORS
GILBERT L. DROZDOW
<PAGE> 59
Exhibit B
Vestar/Calvary Holdings, Inc.
1999 Stock Option Plan
SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary
Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional
officers, key employees and outside directors of, and consultants to, the
Company and its Subsidiaries and (ii) enabling such individuals to participate
in the long-term growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean any entity that, directly or indirectly, is
controlled by, controls or is under common control with, the Company.
"Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Option, which may, but need
not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the earlier to occur of (x) the date
of the sale or disposition, in one or a series of related transactions, of
all or substantially all of the assets of the Company to any "person" or
"group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the
Exchange Act), other than Vestar, or (y) the date of the sale, exchange or
other disposition by Vestar and its Affiliates, in one or a series of
transactions (including, without limitation, by way of merger,
reorganization, recapitalization, consolidation, Public Offering (as
defined in the Stockholders' Agreement), sale of capital stock or assets
of Sheridan or any other Subsidiary of the Company or similar transaction
that results in the disposition, directly or indirectly, of the equity
interests of Vestar and its Affiliates (other than the Management
Investors) in the Company) (collectively, an "Exit Transaction") of 70% or
more of the sum of (1) their equity interest in the Company immediately
following the Closing Date (as defined in the Stockholders'sAgreement)
plus (2) any additional capital contributions to, or investments in, the
Company made by any of Vestar and its Affiliates after the Closing Date
(clauses (1) and (2), collectively, the "Aggregate Investment"); provided
that, in the case of (y) either (A) the consideration received by Vestar
and its Affiliates in the Exit Transaction for 70% or more of the
Aggregate Investment is cash or securities that are distributed in kind to
the limited partners of Vestar Capital Partners III, L.P. and its
Affiliates or a combination thereof or (B) the Exit Transaction results in
(i) designees of Vestar and its Affiliates not constituting a majority of
the Board of Directors (or analogous governing body) of the Company and
(ii) Vestar and its Affiliates not beneficially owning securities of the
Company which constitute at least a majority of the voting power of all
outstanding
<PAGE> 60
2
securities of the Company entitled to vote generally in the election of
directors (or members of an analogous governing body) of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the compensation committee of the Board, or
such other committee of the Board as may be designated by the Board to
administer the Plan.
"Company" shall have the meaning specified in the Stockholders'
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall have the meaning specified in the
Stockholders' Agreement.
"Management Investor" shall have the meaning specified in the
Stockholders' Agreement.
"Option" shall mean a right to purchase Shares from the Company that
is granted under Section 6 of the Plan.
"Participant" shall mean any officer, key employee or outside
director of, or consultant to, the Company or its Subsidiaries eligible
for an Option under Section 5 of the Plan and selected by the Committee to
receive an Option under the Plan.
"Performance Option" shall mean an Option granted under the Plan
which becomes exercisable, or for which the period of exercisability is
accelerated, upon the satisfaction of certain performance criteria
established by the Committee and set forth in the Award Agreement
evidencing such option.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock
Option Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by
the SEC under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the staff thereof.
"Shares" shall mean (i) shares or units of Common Stock (as defined
in the Stockholders' Agreement) or (ii) as may be determined by the
Committee pursuant to Section 4(b).
<PAGE> 61
3
"Stockholders' Agreement" shall mean the Agreement, dated as of
March 24, 1999, among the Company and the other parties identified
therein.
"Subsidiary" shall mean any entity that, directly or indirectly,
is controlled by the Company.
"Substitute Options" shall have the meaning specified in Section
4(c).
"Time Option" shall mean an Option granted under the Plan, which is
not a Performance Option, and which becomes exercisable over time based on
a Participant's continued employment with the Company or its Subsidiaries.
"Vestar" shall mean Vestar Capital Partners III, L.P. and any of
its Affiliates.
SECTION 3. Administration. (a) The Plan shall be administered by the
Committee. Subject to the terms of the Plan, any Award Agreement and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Options to be
granted to a Participant; (iii) determine the number of Shares to be covered by,
or with respect to which payments, rights, or other matters are to be calculated
in connection with, Options; (iv) determine the terms and conditions of any
Option; (v) determine whether, to what extent, and under what circumstances
Options may be settled or exercised in cash, Shares, other securities, other
Options or other property, or canceled, forfeited, or suspended and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Options, other property, and other amounts
payable with respect to an Option shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret,
administer, reconcile any inconsistency, correct any default and/or supply any
omission in the Plan and any instrument or agreement relating to, or Option made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan and subject to the
terms of any Award Agreement, all designations, determinations, interpretations,
and other decisions under or with respect to the Plan or any Option shall be
within the sole discretion of the Committee, may be made at any time and shall
be final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Option, and any
holder of Shares.
(c) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option
hereunder.
<PAGE> 62
4
SECTION 4. Shares Available for Options.
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
the aggregate number of Shares with respect to which Options may be granted
under the Plan shall be 1,150,000; provided, however, that in no event shall the
number of Shares subject to Time Options granted under the Plan exceed 666,667.
If, after the effective date of the Plan, any Shares covered by an Option
granted under the Plan, or to which such an Option relates, are forfeited, or if
an Option has expired, terminated or been cancelled for any reason whatsoever
(other than by reason of exercise or vesting), then the Shares covered by such
Option shall again be, or shall become, Shares with respect to which Options may
be granted hereunder.
(b) Adjustments. In the event that the Committee determines that any Exit
Transaction, dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee in its
discretion to be necessary or appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it in good faith
deems equitable, adjust any or all of (i) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Options may be granted, (ii) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
subject to outstanding Options, and (iii) the exercise price with respect to any
Option or, if deemed appropriate in connection with a Change of Control, make
provision for an immediate cash payment to the holder of an outstanding Option
in consideration for the cancellation of such Option in an amount equal to the
excess, if any, of the Fair Market Value of the Shares subject to the Options
over the aggregate exercise price of such Option.
(c) Substitute Options. Options may be granted, in the discretion of the
Committee, under the Plan in assumption of, or in substitution for, outstanding
awards previously granted by a company acquired by the Company or with which the
Company combines ("Substitute Options"). The number of Shares underlying any
Substitute Options shall be counted against the aggregate number of Shares
available for Options under the Plan.
(d) Sources of Shares Deliverable Under Options. Any Shares delivered
pursuant to an Option may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any officer, key employee or outside director of,
or consultant to, the Company or any of its Subsidiaries (including any
prospective officer or key employee) shall be eligible to be designated a
Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Options shall
be granted, the
<PAGE> 63
5
number of Shares to be covered by each Option, the exercise price therefor and
the conditions and limitations applicable to the exercise of the Option. None of
the Options granted under the Plan are intended to meet the requirements of
Section 422 of the Code or any successor provision thereto.
(b) Exercise Price. The Committee shall establish the exercise price at
the time each Option is granted, which exercise price shall be set forth in the
applicable Award Agreement.
(b) Exercise. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award Agreement or, with the consent of the
Participant thereafter. The Committee may impose such conditions with respect to
the exercise of Options, including without limitation, any relating to the
application of federal or state securities laws, as it may deem necessary or
advisable.
(c) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Such payment shall be made in cash or by bank check or,
subject to the consent of the Committee in its sole discretion, in Shares which
have been owned by the Participant for at least six months, such Shares to be
valued at their Fair Market Value as of the date of exercise.
SECTION 7. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that any such amendment, alteration, suspension, discontinuance or termination
that would impair the rights of any Participant or any holder or beneficiary of
any Option theretofore granted shall not to that extent be effective without the
consent of the affected Participant, holder or beneficiary.
(b) Amendments to Options. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Option theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment or
alteration that would impair the rights of any Participant or any holder or
beneficiary of any Option theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary. In addition, with the consent of any Participant, holder or
beneficiary, the Company may suspend, discontinue, cancel or terminate any
Option theretofore granted, prospectively or retroactively
(c) Adjustment of Options Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the performance criteria applicable to outstanding Performance Options in the
event of any extraordinary and nonrecurring events affecting the Company or its
Subsidiaries, or the financial statements of the Company or its Subsidiaries, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines in good faith that such adjustments are necessary in
order to prevent dilution or enlargement of rights under such Performance
Options.
<PAGE> 64
6
SECTION 8. Change of Control. In the event of a Change of Control after
the date of the adoption of this Plan, (i) any outstanding Time Options then
held by Participants, which are unexercisable or otherwise unvested, shall
automatically be deemed exercisable or otherwise vested, as the case may be, as
of immediately prior to such Change of Control and (ii) any outstanding
Performance Options, whether exercisable or not, then held by Participants,
shall continue to be governed by the terms of each such Participant's Award
Agreement.
SECTION 9. General Provisions.
(a) Nontransferability.
(i) Each Option shall be exercisable only by the Participant during the
Participant's lifetime, or, if permissible under applicable law, by the
Participant's legal guardian or representative. No Option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant otherwise than by will or by the laws of descent and distribution
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(ii) Notwithstanding the foregoing, the Committee may in the applicable
Award Agreement evidencing an Option granted under the Plan or at any time
thereafter in an amendment to an Award Agreement provide that Options granted
hereunder may be transferred by the Participant to whom such Option was granted
(the "Grantee") without consideration, subject to such rules as the Committee
may adopt to preserve the purposes of the Plan, to:
(A) the Grantee's spouse, children or grandchildren (including
adopted and stepchildren and grandchildren) (collectively, the "Immediate
Family");
(B) a trust solely for the benefit of the Grantee and his or her
Immediate Family; or
(C) a partnership or limited liability company whose only partners
or members are the Grantee and his or her Immediate Family members;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); provided that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the requirements
of the Plan and any applicable Award Agreement evidencing the Option.
The terms of any Option transferred in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee and any
reference in the Plan or in an Award Agreement to an optionee, Grantee or
Participant shall be deemed to refer to the Permitted Transferee, except
that (a) Permitted Transferees shall not be entitled to transfer any
Options, other than by will or the laws of descent and distribution; (b)
Permitted Transferees shall not be entitled to exercise any transferred
Options unless
<PAGE> 65
7
there shall be in effect a registration statement on an
appropriate form covering the Shares to be acquired pursuant to the
exercise of such Option if the Committee determines that such a
registration statement or form is necessary or appropriate, (c) the
Committee or the Company shall not be required to provide any notice to a
Permitted Transferee, provided all required notices are given to the
Grantee and (d) the consequences of termination of the Grantee's
employment by, or services to, the Company or any of its Affiliates under
the terms of the Plan and the applicable Award Agreement shall continue to
be applied with respect to the Grantee, following which the Options shall
be exercisable by the Permitted Transferee only to the extent, and for the
periods, specified in the Plan and the applicable Award Agreement.
(b) No Rights to Options. No Participant or other Person shall have any
claim to be granted any Option, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Options. The terms and
conditions of Options and the Committee's determinations and interpretations
with respect thereto need not be the same with respect to each Participant
(whether or not such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other securities of
the Company delivered under the Plan pursuant to any Option or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or other
securities are then listed, any applicable Federal or state laws, and any
applicable written agreements between Vestar and/or the Company and the
Participants including, without limitation, the Stockholders' Agreement, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(d) Withholding.
(i) A Participant shall be required to pay to the Company or any
Affiliate and the Company shall have the right and is hereby authorized to
withhold, any applicable withholding taxes in respect of an Option, its exercise
or any payment or transfer under an Option or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such withholding taxes.
(ii) Notwithstanding any provision of this Plan to the contrary, in
connection with the transfer of an Option to a Permitted Transferee pursuant to
Section 9(a) of the Plan, the Grantee shall remain liable for any withholding
taxes required to be withheld upon the exercise of such Option by the Permitted
Transferee.
(e) Award Agreements. Each Option hereunder shall be evidenced by an Award
Agreement, which shall be delivered to the Participant and shall specify the
terms and conditions of the Option and any rules applicable thereto, including
but not limited to the effect on such Option of the death, disability or
termination of employment or service of a Participant, and the effect, if any,
of such other events as may be determined by the Committee.
(f) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other
<PAGE> 66
8
compensation arrangements, which may, but need not, provide for the grant of
options (subject to stockholder approval if such approval is required), and such
arrangements may be either generally applicable or applicable only in specific
cases.
(g) No Right to Employment. The grant of an Option shall not be construed
as giving a Participant the right to be retained in the employ of, or in any
consulting relationship to, the Company or any Affiliate. Further, the Company
or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(h) No Rights as Stockholder. Subject to the provisions of the applicable
Option, no Participant or holder or beneficiary of any Option shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares.
(i) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of New York.
(j) Severability. If any provision of the Plan or any Option is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Option, or would disqualify the Plan or any Option under any
law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Option, such provision shall be stricken
as to such jurisdiction, Person or Option and the remainder of the Plan and any
such Option shall remain in full force and effect.
(k) Other Laws. The Committee may refuse to issue or transfer any Shares
or other consideration under an Option if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration will violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Option shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Option granted hereunder shall be construed as an offer to
sell securities of the Company, and no such offer shall be outstanding, unless
and until the Committee in its sole discretion has determined that any such
offer, if made, would be in compliance with all applicable requirements of the
U.S. federal and any other applicable securities laws.
(l) No Trust or Fund Created. Neither the Plan nor any Option shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Option, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
<PAGE> 67
9
(m) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(n) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the persons and/or entities who own, immediately after giving effect
to the Effective Time (as defined in the Agreement and Plan of Merger dated as
of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and
Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding
stock of the Company, determined in a manner consistent with Section 280G(b)(5)
of the Internal Revenue Code of 1986, as amended and the proposed regulations
promulgated thereunder. If such approval is not obtained, this Plan and any
Options granted under the Plan shall be null and void and of no force and
effect.
(b) Expiration Date. No Option shall be granted under the Plan after
December 31, 2009. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Option granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Option or to waive any conditions or rights under any such
Option shall, continue after December 31, 2009.
SECTION 11. Awards Subject to Stockholders' Agreement.
Options granted under the Plan and any Shares delivered upon the exercise
or settlement of any Options granted hereunder shall be subject to the
Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement
as it may be amended from time to time are hereby incorporated herein by
reference. In the event of a conflict between any term or provision contained
herein and any terms or provisions of the Stockholders' Agreement, the
applicable provisions of the Stockholders' Agreement will govern and prevail.
<PAGE> 68
Exhibit C
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
PERFORMANCE OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - ----------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 69
2
(a) Time Vesting.
Subject to paragraphs (b), (c) and (d) of this Section 2, the Option
shall vest and become exercisable in full on the ninth anniversary of the
purchase of shares of common stock of Sheridan pursuant to the Offer (the date
of such purchase being the "Purchase Date").
(b) Accelerated Vesting Based Upon Performance.
(i) Subject to the Participant's continued employment with the
Company, the Option shall vest and become exercisable on an accelerated basis
with respect to up to twenty-five percent (25%) of the Shares initially covered
by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting
Shares") on each of the first, second, third and fourth anniversaries of the
Purchase Date (each an "Accelerated Vesting Date") as follows:
(A) With respect to each Accelerated Vesting Date, 100% of
the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity
Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending
immediately prior to the applicable Accelerated Vesting Date (such last day of
the fiscal year being referred to as the "Determination Date") equals or exceeds
the Maximum Annual Price Target (described below) for such Determination Date;
(B) With respect to each Accelerated Vesting Date, 0% of the
Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per
Share as of the applicable Determination Date is less than or equal to the
Minimum Annual Price Target (described below) for such Determination Date; and
(C) With respect to each Accelerated Vesting Date, if the
Common Equity Per Share as of the Determination Date is less than the Maximum
Annual Price Target and greater than the Minimum Annual Price Target for such
Determination Date, then the number of Scheduled Accelerated Vesting Shares
which shall vest will equal the product of (x) 100% of the Scheduled Accelerated
Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall
equal the quotient obtained by dividing (A) the excess of the Value of Common
Equity Per Share as of the Determination Date over the Minimum Annual Price
Target for such Determination Date by (B) the excess of the Maximum Annual Price
Target as of the Determination Date over the Minimum Annual Price Target for
such Determination Date.
(ii) In the event that the Option does not vest on an accelerated
basis with respect to all of the Scheduled Accelerated Vesting Shares on an
Accelerated Vesting Date solely as a result of the failure to achieve or exceed
the applicable Maximum Annual Price Target, then the number of Scheduled Vesting
Shares with respect to which the Option did not vest on an accelerated basis
(the "Missed Shares"), will be available for vesting on the next succeeding
Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The
number of Missed Shares, if any, which will vest on an accelerated basis on the
Make-Up Vesting Date will equal the excess, if any, of (x) the number of
Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the
Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of
Scheduled Accelerated Vesting Shares which actually vested on an accelerated
basis on the immediately preceding Accelerated Vesting Date.
<PAGE> 70
3
<TABLE>
<CAPTION>
Determination Minimum Maximum
Vesting Date Date Annual Price Target Annual Price Target
- - ------------ ---- ------------------- -------------------
<S> <C> <C> <C> <C>
1st anniversary of FY Ending
Purchase Date 12/31/99 $10.18 $10.64
2nd anniversary of FY Ending
Purchase Date 12/31/00 $12.21 $13.83
3rd anniversary of FY Ending
Purchase Date 12/31/01 $14.65 $17.98
4th anniversary of FY Ending
Purchase Date 12/31/02 $17.58 $23.37
5th anniversary of FY Ending $21.10 $30.38
Purchase Date 2/31/03
(Used for 4th
anniversary
missed shares only)
</TABLE>
The determination of the Value of Common Equity Per Share for each fiscal
year shall be made by the Board in good faith based upon, and immediately
following receipt of, the audited financial statements for such fiscal year and
will be calculated (after giving effect to the issuance of all Time Options and
all Performance Options which have previously vested or which will vest in such
fiscal year) pursuant to the methodology outlined in Exhibit A.
(c) Termination of Employment
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability (as
each such term is defined in Section 3(a) below), and the Minimum Annual Price
Target for the Determination Date applicable to the next succeeding Accelerated
Vesting Date is exceeded as of such Determination Date, then the Option shall,
upon the Board's determination that the Minimum Annual Price Target for such
Determination Date has been exceeded, become vested with respect to, and the
Vested Portion of the Option shall include a number of Shares (the "Termination
Shares") equal to the sum of:
(i) the product of (A) the number of Scheduled Accelerated Vesting
Shares that would otherwise have vested pursuant to Section 2(b)(i) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) a fraction, the numerator of which is the
number of days that passed since the immediately preceding Accelerated Vesting
Date through and including the date of the Participant's
<PAGE> 71
4
termination of employment and the denominator of which is 365 (the "Termination
Fraction"); plus
(ii) If there were Missed Shares with respect to the immediately
preceding Accelerated Vesting Date, the product of (A) the number of Missed
Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the
Participant remained employed by the Company through the next succeeding
Accelerated Vesting Date times (B) the Termination Fraction.
(d) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control, the Option shall, to the extent not previously
cancelled, immediately become vested and exercisable with respect to the
Scheduled Accelerated Vesting Shares for any remaining future Accelerated
Vesting Dates, if, and only if, in connection with the Change of Control, Vestar
receives aggregate proceeds, in cash, securities or a combination of cash and
securities, having an aggregate Fair Market Value in an amount equal to or in
excess of the product of (i) Vestar's Aggregate Investment (as defined below)
times (ii) the Minimum Investment Multiple (as defined below) applicable to the
fiscal year of the Company in which such Change of Control occurs; provided
that, securities received by Vestar shall be taken into account for purposes
hereof only if such securities are distributed by Vestar, in kind, to its
limited partners.
For purposes of this Agreement:
"Vestar's Aggregate Investment" shall mean the total amount of capital
invested by Vestar in the Company and its Subsidiaries, including investments
made in connection with the Offer, the Merger contemplated by the Merger
Agreement, or otherwise; and
"Minimum Investment Multiple" shall mean with respect to the Company's
fiscal years ending December 31, 1999 through December 31, 2003 as follows:
<TABLE>
<CAPTION>
FY In Which Change of Control Occurs Minimum Investment Multiple
- - ------------------------------------ ---------------------------
<S> <C> <C>
1999 1.22
2000 1.66
2001 2.12
2002 2.50
2003 3.26
</TABLE>
For purposes of this Section 2(d), "Fair Market Value"shall mean,
solely with respect to securities distributed by Vestar to its limited partners,
the value of such securities as reported by Vestar to such limited partners.
3. Exercise of Option.
<PAGE> 72
5
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability and, with respect to the
Termination Shares, if applicable, 30 days after the determination of the
number of Termination Shares, if later;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason and,
with respect to the Termination Shares, if applicable, 30 days after the
determination of the number of Termination Shares, if later; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in effect as of or after the Date of Grant (as the
same may be amended in accordance with the terms thereof) or if not
defined therein or if there shall be no such agreement, "Cause" shall
exist if a Participant has (i) committed an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against Vestar, Sheridan, the
Company or any Subsidiary or a felony involving the business, assets,
customers or clients of Vestar, Sheridan, the Company or any Subsidiary or
has been convicted by a court of competent jurisdiction or has plead
guilty or nolo contendere to any other felony; (ii) committed a material
breach of any written confidentiality, non-compete, non-solicitation or
business opportunity covenant contained in any agreement entered into by
the Participant and Vestar, Sheridan, the Company or any of their
Affiliates; (iii) substantially failed to perform the Participant's duties
to Sheridan, the Company or any Subsidiary, including by committing a
material breach of any written covenant contained in any agreement entered
into by the Participant and Vestar, Sheridan, the Company or any
Subsidiary (other than a confidentiality, non-compete, non-solicitation or
business opportunity covenant), which failure or breach has not been
remedied within a reasonable time specified by Sheridan (it being
understood that Sheridan can act on behalf of its Affiliates) that is not
less than thirty (30) days after delivery to the Participant by Sheridan
of written notice thereof; or (iv) breached the Participant's obligations
pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse
policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to
<PAGE> 73
6
time, or if there shall be no plan or if not defined therein, the
Participant's becoming physically or mentally incapacitated and consequent
inability for a period of six (6) months in any twelve (12) consecutive
month period to perform the Participant's duties to Sheridan, the Company
or any Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option
may be exercised by delivering to the Company at its principal office written
notice of intent to so exercise; provided that, the Option may be exercised with
respect to whole Shares only. Such notice shall specify the number of Shares for
which the Option is being exercised and shall be accompanied by payment in full
of the Exercise Price. The payment of the Exercise Price shall be made in cash
or, subject to the consent of the Committee, in Shares which have been owned by
the Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this
Agreement to the contrary, the Option may not be exercised prior to the
completion of any registration or qualification of the Option or the Shares that
is required to comply with appliicable state and federal securities or any
ruling or regulation of any governmental body or national securities exchange
that the Committee shall in its sole discretion determine in good faith to be
necessary or advisable.
(iii) Upon the Company's determination that the Option has
been validly exercised as to any of the Shares, the Company shall issue
certificates in the Participant's name for such Shares. However, the Company
shall not be liable to the Participant for damages
<PAGE> 74
7
relating to any delays in issuing the certificates to him, any loss of the
certificates, or any mistakes or errors in the issuance of the certificates or
in the certificates themselves.
(iv) In the event of the Participant's death, the Vested
Portion of the Option shall remain exercisable by a Permitted Transferee, the
Participant's executor or administrator, or the person or persons to whom the
Participant's rights under this Agreement shall pass by will or by the laws of
descent and distribution as the case may be, to the extent set forth in Section
3(a). Any heir or legatee of the Participant shall take rights herein granted
subject to the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant
shall become a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this
Agreement shall be construed as giving the Participant the right to be retained
in the employ of, or in any consulting relationship to, the Company or any
Affiliate. Further, the Company or an Affiliate may at any time dismiss the
Participant or discontinue any consulting relationship, free from any liability
or any claim under the Plan or this Agreement, except as otherwise expressly
provided herein.
5. Legend on Certificates. To the extent provided by the
Stockholders' Agreement, the certificates representing the Shares purchased by
exercise of the Option shall contain a legend stating that they are subject to
the Stockholders' Agreement and may be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause an additional
legend or legends to be put on any such certificates to make appropriate
reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant.
Notwithstanding the foregoing, the Participant may transfer all or
any portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer
<PAGE> 75
8
under an Option or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to
the exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering
into this Agreement the Participant agrees and acknowledges that the Participant
has received and read a copy of the Plan and the Stockholders' Agreement. The
Option is subject to the Plan and the Stockholders' Agreement. The terms and
provisions of the Plan and the Stockholders' Agreement as they may be amended
from time to time in accordance with their respective terms are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan or the
Stockholders' Agreement, the applicable terms and provisions of the Plan or the
Stockholders' Agreement, as applicable, will govern and prevail. In the event of
a conflict between any term or provision of the Plan and any term or provision
of the Stockholders' Agreement, the applicable terms and provisions of the
Stockholders' Agreement will govern and prevail.
<PAGE> 76
9
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
---------------------------
Agreed and acknowledged as of the date first above written:
- - -------------------------
<PAGE> 77
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS
ARE SUBJECT TO ACCELERATED VESTING
STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements
for the year, the Company shall calculate (and the Board of Directors shall
review and approve) EBITDA in good faith pro forma to give effect to all
acquisitions and divestitures completed during the year as if they had occurred
on January 1 of such year.
STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated
in Step 1) by 7.5.
STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value
(calculated in Step 2), deduct year-end balances for Total Debt and Other
Obligations, add year-end balance for Total Cash and add Total Option Proceeds.
For purposes of this calculation, Other Obligations includes any debt-like
instruments such as acquisition-related non-compete, consulting or stock price
guarantee payments as well as non-convertible preferred stock and
out-of-the-money convertible securities. Total Option Proceeds should include
options proceeds related to i) all time-based options (whether or not vested),
ii) all performance-based options that have vested in prior years and iii) all
performance-based options that vest in current year.
STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number
of shares outstanding at the beginning of the year, ii) shares issued in current
year for any reason, including those related to acquisitions, iii) all
time-based options (whether or not vested), iv) all performance-based options
that vest in prior years or in the current year, v) shares associated with
in-the-money convertible preferred stock and vi) shares associated with other
in-the-money common stock equivalents including, but not limited to, warrants
and any other options.
STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common
Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step
4). In Step 6, this number will be compared with the maximum and minimum targets
listed below to determine how many (if any) performance-based options vest in
current year.
STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR.
Multiply the number of options eligible for accelerated vesting in current year
pursuant to the Performance Option Plan by i) if the Value of Common Equity per
Share (Step 5) is greater than or equal to current year's Maximum Annual Price
Target, 100%; ii) if the Value of Common Equity per Share is less than or equal
to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common
Equity per Share is between current year's Minimum and Maximum Annual Price
Targets, the quotient calculated by dividing (A) excess of the Value of Common
Equity per Share over current year's Minimum Annual Price Target by (B) the
excess of current year's Maximum Annual Price Target over current year's Minimum
Annual Price Target.
<TABLE>
<CAPTION>
Minimum Annual Price Maximum Annual Price Target
Year Target
---------- -------------------- -----------------------------
<S> <C> <C>
1999 $10.18 $10.64
2000 12.21 13.83
2001 14.65 17.98
2002 17.58 23.37
2003 21.10 30.38
</TABLE>
<PAGE> 78
SHERIDAN HEALTHCARE, INC.
EXHIBIT A
ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST
PURSUANT TO PERFORMANCE MEASURES
<TABLE>
<CAPTION>
======================================================================
1999 2000 2001 2002 2003
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8
EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5
---------------------------------------------------------------------
Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3
Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6)
Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6
---------------------------------------------------------------------
Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3
Beginning # of Shares 7.317 10.105 10.225 10.346 10.467
Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000
Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000
Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000
Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000
Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000
---------------------------------------------------------------------
Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467
Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24
% appreciation 42.1% 32.9% 42.0% 34.3% 27.7%
ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38
% APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0%
ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10
% APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
</TABLE>
(a) Represents full year EBITDA adjusted to give effect to all current year
acquisitions and divestitures as if they occurred on January 1.
(b) For purposes of calculating Total Enterprise Value at the end of any year,
the EBITDA multiple shall be 7.5x.
(c) Other Obligations include any debt-like instruments such as
acquisition-related noncompete, consulting or stock price guarantee payments
as well as non-convertible preferred stock and out-of-the-money convertible
securities.
(d) Option proceeds assume exercise of all vested in-the-money options,
including those options available for current year vesting. In this example,
assumes all options have exercise price of $9.25.
(e) For purposes of calculating value of common equity per share on this
schedule, all time-based options are deemed vested and exercised.
(f) 483,333 performance options are available for grant. At Closing, 333,333 of
such options will be granted to existing members of management. The
remaining 150,000 options will be reserved for future grant. This example
assumes that all 483,333 are granted.
(g) Assumes a June 30, 1999 closing. If calculated value of common equity per
share exceeds the maximum annual share price target for that year, then 100%
of eligible options will vest (0.121 million in this example).
(h) Assumes a June 30, 1999 closing. If calculated value of common equity per
share is below the minimum annual share price target for that year, then 0%
of eligible options will vest (0.000 million in this example).
<PAGE> 79
Exhibit D
VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN
TIME OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of
_____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary
Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and
_______ (hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999
Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement. Capitalized terms not otherwise defined
herein shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ Shares, subject
to adjustment as set forth in the Plan. The purchase price of the Shares subject
to the Option (the "Exercise Price") shall be the per share price paid by the
Company or one of its Subsidiaries for shares of common stock of Sheridan
Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan
of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary,
Inc. The Option is intended to be a non-qualified stock option, and is not
intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Vesting. At any time, the portion of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
"Vested Portion."
- - --------
(1)The Date of Grant will be the Effective Time under the Merger Agreement.
<PAGE> 80
2
(a) Time Vesting.
Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest
and become exercisable with respect to twenty percent (20%) of the Shares
initially covered by the Option on each of the first, second, third, fourth and
fifth anniversaries (each such anniversary being a "Vesting Date") of the
purchase of shares of common stock of Sheridan pursuant to the Offer.
(b) Termination of Employment.
If the Participant's employment with the Company is terminated for any
reason, the Option shall, to the extent not then vested, be cancelled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a); provided that if the
Participant's employment is terminated by the Company without Cause, by the
Participant for Good Reason or due to the Participant's death or Disability, the
Option shall, as of the date of such termination, become vested with respect to,
and the Vested Portion of the Option shall include, that portion of the Option
which would otherwise have vested on the next Vesting Date.
(c) Change of Control.
Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Change of Control the Option shall, to the extent not then vested
and not previously canceled, immediately become fully vested and exercisable.
3. Exercise of Option.
(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) six months following the date of the Participant's termination
of employment as a result of death or Disability;
(iii) ninety days following the date of the Participant's
termination of employment by the Company without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason; and
(iv) the date of the Participant's termination of employment by the
Company for Cause or by the Participant without Good Reason.
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in
<PAGE> 81
3
effect as of or after the Date of Grant (as the same may be amended in
accordance with the terms thereof) or if not defined therein or if there
shall be no such agreement, "Cause" shall exist if a Participant has (i)
committed an act of fraud, embezzlement, misappropriation or breach of
fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or
a felony involving the business, assets, customers or clients of Vestar,
Sheridan, the Company or any Subsidiary or has been convicted by a court
of competent jurisdiction or has plead guilty or nolo contendere to any
other felony; (ii) committed a material breach of any written
confidentiality, non-compete, non-solicitation or business opportunity
covenant contained in any agreement entered into by the Participant and
Vestar, Sheridan, the Company or any of their Affiliates; (iii)
substantially failed to perform the Participant's duties to Sheridan, the
Company or any Subsidiary, including by committing a material breach of
any written covenant contained in any agreement entered into by the
Participant and Vestar, Sheridan, the Company or any Subsidiary (other
than a confidentiality, non-compete, non-solicitation or business
opportunity covenant), which failure or breach has not been remedied
within a reasonable time specified by Sheridan (it being understood that
Sheridan can act on behalf of its Affiliates) that is not less than thirty
(30) days after delivery to the Participant by Sheridan of written notice
thereof; or (iv) breached the Participant's obligations pursuant to
Sheridan's, the Company's or any Subsidiary's substance abuse policy;
"Disability" shall mean "disability" as defined in any employment
agreement entered into by and between the Participant and the Company or
any of its Subsidiaries which is in effect as of or after the Date of
Grant (as the same may be amended in accordance with the terms thereof) or
if not defined therein or if there shall be no such agreement, as defined
in Sheridan's long-term disability plan as in effect from time to time, or
if there shall be no plan or if not defined therein, the Participant's
becoming physically or mentally incapacitated and consequent inability for
a period of six (6) months in any twelve (12) consecutive month period to
perform the Participant's duties to Sheridan, the Company or any
Subsidiary;
"Good Reason" shall mean, if the Participant has entered into an
employment agreement with Sheridan, the Company or any of its Subsidiaries
which is in effect as of the Date of Grant, the occurrence of such events
which, under the terms of such employment agreement (as the same may be
amended in accordance with the terms thereof), would expressly enable the
Participant to resign from employment and be treated under such employment
agreement as though the Participant's employment had been terminated by
the Company without "cause" or, if the employment agreement does not
include such provisions or if there shall be no such employment agreement,
"Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has
failed to pay the Participant his salary; (ii) the office where the
Participant performs his duties is moved more than 30 miles from where the
Participant performed the Participant's duties on the Date of Grant; (iii)
a substantial reduction of the Participant's base salary (other than an
across the board reduction similarly affecting other comparable employees
of Sheridan, the Company or its Subsidiaries) or a substantial diminution
of the Participant's duties, which, in each case, has not been remedied
within a reasonable time specified by the Participant that is not less
than thirty (30) days after delivery to Sheridan of written notice
describing the event constituting Good Reason; and
<PAGE> 82
4
"Vestar" shall mean, solely for purposes of the Cause definition,
Vestar Capital Partners III, L.P.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option may be
exercised by delivering to the Company at its principal office written notice of
intent to so exercise; provided that, the Option may be exercised with respect
to whole Shares only. Such notice shall specify the number of Shares for which
the Option is being exercised and shall be accompanied by payment in full of the
Exercise Price. The payment of the Exercise Price shall be made in cash or,
subject to the consent of the Committee, in Shares which have been owned by the
Participant for at least six months, such Shares to be valued at their Fair
Market Value as of the date of exercise.
(ii) Notwithstanding any other provision of the Plan or this Agreement to
the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares that is required to
comply with applicable state and federal securities or any ruling or regulation
of any governmental body or national securities exchange that the Committee
shall in its sole discretion determine in good faith to be necessary or
advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss of the certificates, or any mistakes or errors in the issuance
of the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested Portion of the
Option shall remain exercisable by a Permitted Transferee, the Participant's
executor or administrator, or the person or persons to whom the Participant's
rights under this Agreement shall pass by will or by the laws of descent and
distribution as the case may be, to the extent set forth in Section 3(a). Any
heir or legatee of the Participant shall take rights herein granted subject to
the terms and conditions hereof.
(v) As a condition to exercising the Option, the Participant shall become
a party to the Stockholders' Agreement.
4. No Right to Continued Employment. Neither the Plan nor this Agreement
shall be construed as giving the Participant the right to be retained in the
employ of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an Affiliate may at any time dismiss the Participant or
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.
5. Legend on Certificates. To the extent provided by the Stockholders'
Agreement, the certificates representing the Shares purchased by exercise of the
Option shall
<PAGE> 83
5
contain a legend stating that they are subject to the Stockholders' Agreement
and may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which such Shares are listed, and any applicable Federal or state laws, and the
Committee may cause an additional legend or legends to be put on any such
certificates to make appropriate reference to such other restrictions.
6. Transferability. The Option may not be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution,
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of
the Participant shall be effective to bind the Company unless the Committee
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant's lifetime, the Option is exercisable
only by the Participant
Notwithstanding the foregoing, the Participant may transfer all or any
portion of the Option to a Permitted Transferee in accordance with Section
9(a)(ii) of the Plan.
7. Withholding. A Participant shall be required to pay to the
Company or any Affiliate, and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of an
Option, its exercise or any payment or transfer under an Option or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such withholding taxes.
8. Securities Laws. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. Notices. Any notice necessary under this Agreement shall be addressed
to the Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan and Stockholders' Agreement. By entering into
this Agreement the Participant agrees and acknowledges that the Participant has
received and read a copy of the Plan and the Stockholders' Agreement. The Option
is subject to the Plan and the
<PAGE> 84
6
Stockholders' Agreement. The terms and provisions of the Plan and the
Stockholders' Agreement as they may be amended from time to time in accordance
with their respective terms are hereby incorporated herein by reference. In the
event of a conflict between any term or provision contained herein and a term or
provision of the Plan or the Stockholders' Agreement, the applicable terms and
provisions of the Plan or the Stockholders' Agreement, as applicable, will
govern and prevail. In the event of a conflict between any term or provision of
the Plan and any term or provision of the Stockholders' Agreement, the
applicable terms and provisions of the Stockholders' Agreement will govern and
prevail.
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
VESTAR/CALVARY HOLDINGS, INC.
By:
------------------------------
Agreed and acknowledged as of the date
first above written:
- - ------------------------------
<PAGE> 1
TENDER AGREEMENT
TENDER AGREEMENT, dated as of March 24, 1999 (this
"Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware corporation (the
"Company"), and Robert J. Coward (the "Executive").
WHEREAS, concurrently herewith, the Company, Vestar/Calvary,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation
("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the
date hereof (the "Merger Agreement") pursuant to which, among other things,
Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $.01 per share, and Class A Common
Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common
Stock") and (y) to merge (the "Merger") into Sheridan;
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and make the Offer, the Company and Acquisition have required
the Executive and certain other Management Investors referred to below to enter
into this Agreement and the other Executive Documents referred to in the Merger
Agreement;
WHEREAS, the Executive has agreed, among other things, to
tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan
Common Stock owned by him as of the date hereof and all shares of Sheridan
Common Stock, if any, acquired by him after the date hereof and prior to the
expiration of the Offer (the "Tender Shares");
WHEREAS, this Agreement is one of several agreements being
entered into by the Company on or after the date hereof with certain persons who
are or will be key employees of the Company or one of its subsidiaries
(collectively with the Executive, the "Management Investors");
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Agreements Relating to Tender Shares.
1.1. Agreement to Tender. The Executive hereby agrees to
validly tender pursuant to the Offer and not withdraw from the Offer all Tender
Shares; provided that the Merger Agreement has not been terminated.
1.2. Voting of Tender Shares. The Executive hereby agrees, so
long as the Executive is required to tender Tender Shares pursuant to Section
1.1 hereof, to vote all Tender Shares (a) in favor of the adoption of the Merger
Agreement and the approval of the transactions contemplated thereby and (b)
against any action or agreement that would result in a breach of
<PAGE> 2
any representation, warranty, covenant or agreement of the Company contained in
the Merger Agreement or would impede, interfere with, delay or prevent the
consummation of the Merger or the purchase of shares of Sheridan Common Stock
pursuant to the Offer. The Executive shall not, so long as the Executive is
required to tender Tender Shares pursuant to Section 1.1 hereof, purport to vote
(or execute a written consent with respect to) Tender Shares other than in
accordance with this Agreement or grant any proxy or power of attorney with
respect to Tender Shares, deposit any Tender Shares into a voting trust, or
enter into any agreement, arrangement or understanding with any person (other
than this Agreement), directly or indirectly, to vote, grant any proxy or give
instructions with respect to the voting of Tender Shares, or agree to do any of
the foregoing.
1.3. Disposition of Tender Shares. The Executive shall not, so
long as the Executive is required to tender Tender Shares pursuant to Section
1.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise
encumber, any Tender Shares after the date hereof (except to tender Tender
Shares to Acquisition pursuant to the Offer), or agree to do any of the
foregoing.
1.4. Stop Transfer Order. The Executive hereby agrees to cause
Sheridan's transfer agent to be notified that there is a stop transfer order
(except to tender Tender Shares to Acquisition pursuant to the Offer) with
respect to all Tender Shares so long as the Executive is required to tender
Tender Shares pursuant to Section 1.1 hereof.
2. Options.
2.1. Adoption of Option Plan. Immediately following the
Effective Time (as defined in the Merger Agreement), the Company shall duly
adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially
the form attached hereto as Exhibit B.
2.2. Grant of Performance Options. Immediately following the
Effective Time, the Company and the Executive shall duly execute and deliver a
Performance Option Agreement in substantially the form attached hereto as
Exhibit C pursuant to which the Executive will be granted performance options to
purchase the number of shares of common stock, par value $.01 per share, of the
Company ("Common Stock") set forth opposite his name on Schedule I hereto at an
exercise price equal to the per share price paid by the Executive for Common
Stock pursuant hereto. Following such due execution and delivery thereof, the
Performance Option Agreement shall constitute a valid and binding obligation of
each of the Company and the Executive, enforceable against each of the Company
and the Executive in accordance with its terms.
2.3. Grant of Time Options. Immediately following the
Effective Time, the Company and the Executive shall duly execute and deliver a
Time Option Agreement in substantially the form attached hereto as Exhibit D
pursuant to which the Executive will be granted time options to purchase the
number of shares of Common Stock set forth opposite his name on Schedule I
hereto at an exercise price equal to the per share price paid by the Executive
for Common Stock pursuant hereto. Following such due execution and delivery
thereof, the Time Option Agreement shall constitute a valid and binding
obligation of each of the Company
2
<PAGE> 3
and the Executive, enforceable against each of the Company and the Executive in
accordance with its terms.
2.4. Conditions to the Obligations of the Parties. The
obligations of the Company under this Section 2 shall be subject to the
conditions that (i) the Executive shall have executed and delivered a
supplementary agreement (a "Supplement") to the Stockholders Agreement dated as
of the date hereof among the Company and its stockholders party thereto in
substantially the form attached hereto as Exhibit A (the "Stockholders
Agreement") pursuant to Section 5.13 hereof, (ii) the representations and
warranties of the Executive in Section 3 of this Agreement shall be true and
correct as of the Closing Date (as defined in the Stockholders Agreement) in all
material respects and (iii) the Executive shall not have breached his
obligations under Section 1 hereof.
3. Representations, Warranties and Covenants of the Executive.
3.1. Residence and Competency; Power; Enforceability;
Noncontravention. The Executive is competent to and has sufficient capacity to
execute and deliver this Agreement and the Stockholders Agreement and to perform
his obligations hereunder and thereunder. This Agreement has been and the
Supplement will be duly executed and delivered by the Executive.
Assuming the due execution and delivery of this Agreement and
the Supplement by the Company, this Agreement constitutes and the Stockholders
Agreement, as modified by the Supplement, will constitute valid and binding
obligations of the Executive, enforceable against the Executive in accordance
with their terms.
The execution, delivery and performance of this Agreement and
the Supplement by the Executive will not (i) conflict with or violate any law,
rule, regulation, ordinance, writ, injunction, judgment or decree applicable to
the Executive or by which any of his assets may be bound or affected or (ii)
result in any breach of any terms or conditions of, or constitute a default
under, any contract, agreement or instrument to which the Executive is a party
or by which the Executive is bound.
4. Miscellaneous.
4.1. Recapitalizations, Exchanges, Etc., Affecting Common
Stock. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to Common Stock, to any and all shares of capital
stock of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution for Common Stock, by reason of
any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Upon the occurrence of any of such events, amounts hereunder shall be
appropriately adjusted, in good faith, by the Board of Directors of the Company.
4.2. Executive's Employment by the Company. Nothing contained
in this Agreement shall be deemed to obligate the Company or any subsidiary of
the Company to
3
<PAGE> 4
employ the Executive in any capacity whatsoever or to prohibit or restrict the
Company (or any such subsidiary) from terminating the employment, if any, of the
Executive at any time or for any reason whatsoever, with or without Cause (as
defined in the Stockholders Agreement).
4.3. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. No assignment of any of
the rights or obligations of the Executive shall be permitted except as
expressly contemplated hereby; any purported assignment in violation of this
provision shall be null and void ab initio.
4.4. Amendment; Waiver. This Agreement may be amended only by
a written instrument signed by the parties hereto. No waiver by either party
hereto of any of the provisions hereof shall be effective unless set forth in a
writing executed by the party so waiving.
4.5. Governing Law. This Agreement shall be governed by and
construed in all respects under the laws of the State of New York. Any action to
enforce which arises out of or in any way relates to any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located
within the State of New York as provided by law; and the parties consent to the
jurisdiction of such court or courts located within the State of New York and to
service of process by registered mail, return receipt requested, or by any other
manner provided by New York law.
4.6. Notices. Any notices or communications permitted or
required hereunder shall be deemed sufficiently given if hand-delivered, or sent
by (x) registered or certified mail return receipt requested, (y) telecopy or
other electronic transmission service (to the extent receipt is confirmed) or
(z) by overnight courier, in each case to the parties at their respective
addresses and telecopy numbers set forth below, or to such other address of
which any party may notify the other party in writing.
(a) If to the Company, to it at the following address:
Vestar/Calvary Holdings, Inc.
c/o Vestar Capital Partners
245 Park Avenue
41st Floor
New York, NY 10167
Attention: James L. Elrod, Jr.
Telecopy: (212) 808-4922
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Telecopy: (212) 455-2502
4
<PAGE> 5
(b) If to the Executive, to him at Robert J. Coward, 821 SE
Court, #7, Fort Lauderdale, FL 33316.
4.7. Integration. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
4.8. Counterparts. This Agreement may be executed in two or
more counterparts, and by different parties on separate counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
4.9. Injunctive Relief. The Executive, on behalf of himself
and his permitted transferees, and the Company, on its own behalf and on behalf
of its successors and assigns, each acknowledges and agrees that a violation of
any of the terms of this Agreement will cause the other irreparable injury for
which adequate remedy at law is not available. Accordingly, it is agreed that
the Company or the Executive, as the case may be, shall be entitled to an
injunction, restraining order or other equitable relief to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which it or he may be
entitled at law or equity.
4.10. Rights to Negotiate. Nothing in this Agreement shall be
deemed to restrict or prohibit the Company from purchasing shares of Common
Stock from the Executive at any time upon such terms and conditions and at such
price as may be mutually agreed upon between the Company and the Executive,
whether or not at the time of such purchase circumstances exist which
specifically grant the Company the right to purchase, or the Executive the right
to sell, shares of Common Stock pursuant to the terms of this Agreement or the
Stockholders Agreement.
4.11. Rights Cumulative; Waiver. The rights and remedies of
the Executive and the Company under this Agreement shall be cumulative and not
exclusive of any rights or remedies which either would otherwise have hereunder
or at law or in equity or by statute, and no failure or delay by either party in
exercising any right or remedy shall impair any such right or remedy or operate
as a waiver of such right or remedy, nor shall any single or partial exercise of
any power or right preclude such party's other or further exercise or the
exercise of any other power or right. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ James L. Elrod, Jr.
----------------------------------
Name: James L. Elrod, Jr.
Title: President
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
EXECUTIVE:
/s/ Robert J. Coward
-----------------------------
Robert J. Coward
7
<PAGE> 8
Robert J. Coward
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares Subject Number of Shares Subject
to Time Options to Performance Options
- - --------------- ----------------------
<S> <C>
33,333 16,667
</TABLE>
<PAGE> 1
MANAGEMENT AGREEMENT
This Agreement is made as of this 24th day of March, 1999 among Sheridan
Healthcare, Inc., a Delaware corporation (the "Company"), Vestar/Calvary
Holdings, Inc. (AHoldings") and Vestar Capital Partners, a New York general
partnership ("Vestar").
WHEREAS, Vestar, by and through its officers, employees, agents,
representatives and affiliates, has expertise in the areas of corporate
management, finance, investment, acquisitions and other matters relating to the
business of the Company; and
WHEREAS, the Company desires to avail itself, for the term of this
Agreement, of the expertise of Vestar in the aforesaid areas, in which it
acknowledges the expertise of Vestar.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions herein set forth, the parties hereto agree as follows:
1. Appointment. Each of Holdings and the Company hereby appoints Vestar to
render the advisory and consulting services described in Paragraph 2 hereof
commencing upon the Effective Time (as defined in Section 3(b) hereof).
2. Services. Vestar hereby agrees that commencing upon the Effective Time
it shall render to each of Holdings and the Company (and their subsidiaries) by
and through such of Vestar's officers, employees, agents, representatives and
affiliates as Vestar, in its sole discretion, shall designate from time to time,
advisory and consulting services in relation to the affairs of Holdings and the
Company (and their subsidiaries) in connection with strategic financial
planning, and other services not referred to in the next sentence, including,
without limitation, advisory and consulting services in relation to the
selection, supervision and retention of independent auditors, the selection,
retention and supervision of outside legal counsel, and the selection, retention
and supervision of investment bankers or other financial advisors or
consultants. It is expressly agreed that the services to be performed hereunder
shall not include (x) investment banking or other financial advisory services
rendered by any of Vestar and its affiliates to Holdings and the Company (and
their subsidiaries) after the Effective Time in connection with acquisitions,
divestitures, refinancings, restructurings and similar transactions by Holdings
and the Company (and their subsidiaries) or (y) full or part-time employment by
any of the Company and its subsidiaries of any employee or partner of any of
Vestar and its affiliates, in each case, for which Vestar and its affiliates
shall be entitled to receive additional compensation.
3. Fees. (a) In consideration of the services contemplated by Paragraph 2,
subject to the provisions of Paragraph 6, Holdings and the Company and their
respective successors hereby jointly and severally agree to pay to Vestar an
aggregate per annum management fee (the "Fee") equal to the greater of (i)
$300,000 and (ii) an amount per annum equal to 1.5% of the consolidated earnings
before depreciation, interest, taxes and amortization of Holdings and its
subsidiaries for such fiscal year, determined in accordance with generally
accepted accounting principles ("EBITDA"), commencing at the Effective Time. The
Fee shall be payable semi-annually in advance (based on clause (i) above in 1999
and thereafter based on the greater of clause (i) above and 1.5% of the prior
year"s EBITDA), with an adjustment of
<PAGE> 2
2
the Fee for any fiscal year payable promptly following the determination of
EBITDA for such fiscal year or on termination of this Agreement. The semi-annual
Fee payments shall be non-refundable (except for any downward adjustment as
described above).
(b) Holdings and the Company and their respective successors also hereby
jointly and severally agree to pay Vestar at the effective time (the "Effective
Time") of the merger provided for in the Agreement and Plan of Merger dated
March 24, 1999 among the Company, Holdings and Vestar/Calvary, Inc. (the "Merger
Agreement") a transaction fee equal to $1.6 million plus all of Out-of-Pocket
Expenses (as defined in Section 4) incurred by Vestar prior to the Effective
Time for services rendered by Vestar in connection with the consummation of the
Offer and the Merger referred to in the Merger Agreement.
4. Reimbursements. In addition to the Fee, Holdings and the Company hereby
jointly and severally agree, at the direction of Vestar, to pay directly or
reimburse Vestar for its reasonable Out-of-Pocket Expenses incurred after the
Effective Time in connection with the services provided for in Paragraph 2
hereof. For the purposes of this Agreement, the term "Out-of-Pocket Expenses"
shall mean the amounts paid by or on behalf of Vestar in connection with the
services contemplated hereby, including reasonable (i) fees and disbursements of
any independent professionals and organizations, including independent auditors
and outside legal counsel, investment bankers or other financial advisors or
consultants, (ii) costs of any outside services or independent contractors, such
as financial printers, couriers, business publications or similar services, and
(iii) transportation, per diem, telephone calls, word processing expenses or any
similar expense not associated with its ordinary operations. All reimbursements
for Out-of-Pocket Expenses shall be made promptly upon or as soon as practicable
after presentation by Vestar of the statement in connection therewith.
5. Indemnification. Holdings and the Company hereby jointly and severally
agree to indemnify and hold harmless Vestar and its affiliates and their
respective partners, officers, directors, employees, agents, representatives and
stockholders (each being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities of whatever kind or nature, joint or
several, absolute, contingent or consequential, to which such Indemnified Party
may become subject under any applicable federal or state law, or any claim made
by any third party, or otherwise, to the extent they relate to or arise out of
the services contemplated by this Agreement or the engagement of Vestar pursuant
to, and the performance by Vestar of the services contemplated by, this
Agreement. Holdings and the Company hereby jointly and severally agree to
reimburse any Indemnified Party for all reasonable costs and expenses (including
reasonable attorneys' fees and expenses) as they are incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim for which the Indemnified Party would be entitled to indemnification under
the terms of the previous sentence, or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party hereto. Holdings and
the Company will not be liable under the foregoing indemnification provision to
the extent that any loss, claim, damage, liability, cost or expense is
determined by a court, in a final judgment from which no further appeal may be
taken, to have resulted primarily from the gross negligence or willful
misconduct of Vestar. Neither Holdings nor the Company
<PAGE> 3
3
shall be obligated to make any payment to Vestar hereunder unless and until the
Effective Time has occurred.
6. Term. This Agreement shall be in effect on the date hereof and shall
terminate upon the earlier to occur of (i) the termination of the Merger
Agreement or (ii) such time after the Effective Time as Vestar Capital Partners
III, L.P., a Delaware limited partnership ("VCP"), and the partners therein and
the respective affiliates thereof hold, in the aggregate, less than 20% of the
voting power of the Company's outstanding voting stock. The provisions of
Paragraphs 4, 5, 7 and 8 and the joint and several obligation of Holdings and
the Company to pay Fees accrued during the term of this Agreement pursuant to
Section 2 shall survive the termination of this Agreement.
7. Permissible Activities. Subject to all applicable provisions of New
York law that impose fiduciary duties upon Vestar or its partners or affiliates,
nothing herein shall in any way preclude Vestar or its partners, officers,
employees or affiliates from engaging in any business activities or from
performing services for its or their own account or for the account of others,
including for companies that may be in competition with the business conducted
by the Company.
8. General. (a) No amendment or waiver of any provision of this Agreement,
or consent to any departure by either party from any such provision, shall in
any event be effective unless the same shall be in writing and signed by the
parties to this Agreement and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) Any and all notices hereunder shall, in the absence of receipted hand
delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to Vestar: Vestar Capital Partners
245 Park Avenue, 41st Floor
New York, New York 10167
Attention: Robert L. Rosner
If to Holdings Sheridan Healthcare, Inc
or the Company: 4651 Sheridan Street
Suite 400
Hollywood, FL 33021
Attention: Mitchell Eisenberg, M.D.
and
Jay A. Martus, Esq.
<PAGE> 4
4
Vestar/Calvary Holdings, Inc.
c/o Vestar Capital Partners
245 Park Avenue, 41st Floor
New York, New York 10167
Attention: Robert L. Rosner
In any case,
with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
(c) This Agreement shall constitute the entire Agreement between the
parties with respect to the subject matter hereof, and shall supersede all
previous oral and written (and all contemporaneous oral) negotiations,
commitments, agreements and understandings relating hereto.
(d) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. THE PARTIES TO THIS
AGREEMENT HEREBY AGREE TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
FEDERAL AND STATE COURTS LOCATED IN THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. This Agreement shall
inure to the benefit of, and be binding upon, Vestar, the Indemnified Parties,
the Company and their respective successors and assigns.
(e) This Agreement may be executed in two or more counterparts, and
by different parties on separate counterparts, each set of counterparts showing
execution by all parties shall be deemed an original, but all of which shall
constitute one and the same instrument.
(f) The waiver by any party of any breach of this Agreement shall not
operate as or be construed to be a waiver by such party of any subsequent
breach.
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers or agents as set forth
below.
VESTAR CAPITAL PARTNERS
By its General Partner: Vestar
Management Corporation I
By: /s/ Robert L. Rosner
---------------------------
Name: Robert L. Rosner
Title: Member
SHERIDAN HEALTHCARE, INC.
By: /s/ Jay A. Martus
---------------------------
Name: Jay A. Martus
Title: Vice President
VESTAR/CALVARY HOLDINGS, INC.
By: /s/ James L. Elrod
---------------------------
Name: James L. Elrod
<PAGE> 1
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (the "Guaranty Agreement"), dated as of March 24,
1999 (the "Execution Date"), is by and between Vestar Capital Partners III, L.P.
("VCP") to Sheridan Healthcare, Inc. ("Sheridan").
PRELIMINARY STATEMENTS
1. Sheridan, Vestar/Calvary Holdings, Inc. ("VCHoldings") and Vestar
Calvary, Inc. ("VCI") have entered into an Agreement and Plan of Merger dated as
of March __, 1999 (the "Merger Agreement").
2. As a condition and inducement to Sheridan's entering into the Merger
Agreement, VCP has agreed to guarantee full and prompt payment of VCI's
obligations to Sheridan under Section 8.2(d) of the Merger Agreement ("VCI's
Obligations"), pursuant to the terms of this Guaranty Agreement.
In consideration of the mutual covenants contained in this Guaranty
Agreement, the parties agree as follows:
AGREEMENT
1. Guaranty. VCP unconditionally, absolutely, continually and irrevocably
guarantees to Sheridan the prompt payment in full of VCI's Obligations.
2. Payment. If VCI shall default in payment or performance of any of VCI's
Obligations when they become due, then VCP, promptly upon Sheridan's demand,
shall fully pay to Sheridan an amount equal to all of VCI's Obligations then due
and owing.
3. Unconditional Obligation. This is a guaranty of payment and not of
performance or collection. It is the purpose and intent of the parties that
VCP's guaranty of VCI's obligations shall be absolute and unconditional and
shall not be discharged except by payment as provided in this Guaranty
Agreement.
4. Currency and Funds of Payment. VCP guarantees that VCI's Obligations
shall be paid in lawful currency of the United States of America and in
immediately available funds, regardless of any law, regulation or decree now or
hereafter in effect.
5. Waiver; Subrogation; Subordination.
(a) VCP waives notice of the following events or occurrences; (i)
Sheridan's acceptance of this Guaranty Agreement; (ii) Sheridan, VCI and
VCHoldings, now or at any time hereafter, obtaining, amending, substituting for,
releasing, waiving or modifying the Merger
<PAGE> 2
Agreement and any of the Other Documents; (iii) presentment, demand, notices of
default, non-payment, partial payment and protest; (iv) Sheridan, now or at any
time hereafter, granting to VCI any indulgence or extensions of time of payment
of VCI's Obligations; and (v) Sheridan, now or at any time hereafter, accepting
from VCI or any other person, any partial payment or payments on account of
VCI's obligations or settling, subordinating, compromising, discharging or
releasing the same. VCP agrees that Sheridan may now or at any time hereafter do
any or all of the foregoing in any manner, upon any terms and at any times as
Sheridan, in its sole and absolute discretion, deems advisable, without in any
way or respect impairing, affecting, reducing or releasing VCP from its
obligations under this Guaranty Agreement, and VCP consents to each and all of
the foregoing events or occurrences.
(b) VCP agrees that payment by VCP may be enforced by Sheridan and
VCP expressly waives any right it may have to require Sheridan to prosecute
collection or seek to enforce or resort to any remedies against VCI.
(c) Until all of VCI's Obligations are paid in full, VCP
unconditionally subordinates all present and future debts, liabilities or
obligations of VCI and until all of VCI's Obligations have been fully satisfied,
all amounts due to VCP from VCI under such debts, liabilities, or obligations
shall be collected and held by VP as agent and bailee of Sheridan separate and
apart from all other funds, property and accounts of VCP.
6. Effectiveness; Enforceability. This Guaranty Agreement shall be
effective as of the Execution Date and shall continue in full force and effect
until all of VCI's Obligations are fully paid or the merger contemplated by the
Merger Agreement has been consummated. This Guaranty Agreement shall be binding
upon and inure to the benefit of VCP and Sheridan and their respective
successors and assigns. Notwithstanding the foregoing, VCP may not, without the
prior written consent of Sheridan, assign any rights, powers duties or
obligations hereunder.
7. Representations and Warranties. VCP represents and warrants to Sheridan
that it is duly authorized to execute, deliver and perform this Guaranty
Agreement, that this Guaranty Agreement is legal, valid, binding and enforceable
against VCI in accordance with its terms except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of credits' rights generally and by general equitable
principles; and that VCP's execution, delivery and performance of this Guaranty
Agreement does not violate or constitute a breach of its governing documents or
any agreement to which VCP is a party or any applicable laws.
8. Miscellaneous. VCP agrees to be liable for the payment of all
reasonable fees and expenses, including attorney's fees, costs and expenses (at
both trial and appellate levels), incurred by Sheridan in connection with the
enforcement of this Guaranty Agreement if VCP fails to perform its obligations
hereunder. This Guaranty Agreement and Section 8.2(d) of the Merger Agreement
constitute the entire agreement among the parties with
<PAGE> 3
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Guaranty Agreement shall be binding upon
any party hereto unless made in writing signed on behalf of each of the parties
to it. This Agreement may be executed by the parties in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument. Headings of
this Guaranty Agreement are for the convenience of the parties only and shall be
given no substantive or interpretive effect whatsoever. In this Agreement,
unless the context otherwise requires, words describing the singular number
shall include the plural and vice versa, and words denoting any gender shall
include all genders and words denoting natural persons shall include
corporations and partnerships and vice versa. Except as provided in this
Guaranty Agreement, no action taken pursuant to this Guaranty Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party of a breach of any
provision hereunder shall not operate or be construed as a waiver of any prior
or subsequent breach of the same or any other provision. Any term or provision
of this Guaranty Agreement which is invalid or unenforceable in any jurisdiction
shall, as to that jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Guaranty Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Guaranty Agreement in
any other jurisdiction. If any provision of this Guaranty Agreement is so broad
as to be unenforceable, the provision shall be interpreted to be only so broad
as is enforceable.
9. Notices. All notices required or permitted to be given hereunder shall
be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given five (5) business days after being deposited in the United
States mail, postage prepaid, registered or certified mail. Notices delivered by
hand, by facsimile, or by nationally recognized private carrier, shall be deemed
given on the day following receipt; provided, however, that a notice delivered
by facsimile shall only be effective if such notice is also delivered by hand,
or deposited in the United States mail, postage prepaid, registered or certified
mail, on or before two (2) business days after its delivery by facsimile. All
notices shall be addressed as follows:
If to VCP: If to Sheridan:
Vestar Capital Partners III, L.P. Sheridan Healthcare, Inc.
245 Park Avenue, 41st Floor 4651 Sheridan Street, Suite 400
New York, NY 10167 Hollywood, FL 33021
Attn: James L. Elrod, Jr. Attn: Mitchell Eisenberg, M.D.
Facsimile: (212) 808-4922 Chairman, President and Chief
Executive Officer
and
Jay A. Martus, Esq.
Vice President and General Counsel
<PAGE> 4
Facsimile: (954) 987-8359
With copies to:
Simpson Thacher & Bartlett Akerman, Senterfitt & Eidson P.A.
425 Lexington Avenue One S.E. 3rd Avenue, 28th Floor
Attn: Peter J. Gordon, Esq. Attn: Stephen K. Roddenberry, Esq.
Facsimile: (212) 455-2502 Facsimile (305) 374-5095
or such other address as any party shall specify by written notice so given.
10. Governing Law; Waivers of Trial by Jury, Etc.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE.
(b) EACH PARTY HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS
THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED HEREIN SHALL BE INSTITUTED IN A STATE OR
FEDERAL COURT SITTING IN THE STATE OF DELAWARE AND, BY THE EXECUTION AND
DELIVERY OF THIS AGREEMENT, EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY HAVE NOW
OR HEREAFTER TO THE LAYING OF THE VENUE OR TO THE JURISDICTION OF ANY SUCH SUIT,
ACTION OR PROCEEDING, AND IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO
THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING.
(c) EACH PARTY AGREES THAT SERVICE OF PROCESS MAY BE MADE BY
PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS
IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL
(POSTAGE PREPAID), TO THE RELEVANT PARTY'S ADDRESS (AS HEREIN DEFINED) OR BY ANY
OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE
STATE OF DELAWARE.
(d) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN
CONNECTION WITH THE FOREGOING, EACH PARTY HEREBY AGREES, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY AND EACH PARTY HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR
PROCEEDING HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM.
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IN WITNESS WHEREOF, VCP and Sheridan have each duly executed this Guaranty
Agreement as of the Execution Date.
VCP: VESTAR CAPITAL PARTNERS III, L.P.
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By:
-------------------------------------
Name
Title: Managing Director
SHERIDAN: SHERIDAN HEALTHCARE, INC.
By:
-------------------------------------
Name
Title:
