EXHIBIT 10.43
SECURITIES PURCHASE AGREEMENT
By and Between
PHYSICIAN HEALTH CORPORATION
and
PARIBAS PRINCIPAL INCORPORATED
As of October __, 1997
TABLE OF CONTENTS
1. DEFINITIONS .................................................. 1
2. SALE AND PURCHASE OF SECURITIES............................... 9
2.1. Investor Securities .................................... 9
2.2. Agreement to Sell and Purchase...................... ... 10
2.3. Closing................................................. 10
2.4. Equity Call Agreement................................... 10
2.5. Use of Proceeds......................................... 10
3. CONDITIONS TO PURCHASE ....................................... 11
3.1. Investor Agreements .................................... 11
3.2. Investor Securities .................................... 11
3.3. Legal Opinion........................................... 11
3.4. Representations and Warranties;
Officer's Certificate ................................. 11
3.5. SBIC Forms ............................................. 11
3.6. Key Executive Insurance................................. 11
3.7. Legality; Governmental Authorization.................... 11
3.8. Certificate of Designation.............................. 12
3.9. General................................................. 12
3.10. Credit Agreement ....................................... 12
4. REPRESENTATIONS AND WARRANTIES ............................... 12
4.1. Credit Agreement ....................................... 12
4.2. Organization and Subsidiaries; Business ................ 12
4.2.1. The Company ................................... 12
4.2.2. Subsidiaries .................................. 13
4.2.3. Conduct of Business ........................... 13
4.3. Capitalization ......................................... 13
4.3.1. Capital Stock of the Company .................. 13
4.3.2. Options, etc .................................. 13
4.3.3. Capital Stock of the Subsidiaries ............. 14
4.3.4. Subsidiary Options, etc........................ 14
4.4. Reports, Financial Statements and Other Documents ...... 14
4.5. Changes in Condition ................................... 15
4.5.1. Material Adverse Effect ....................... 15
(i)
4.5.2. Extraordinary Transactions, etc. ................... 15
4.6. Solvency ................................................... 15
4.7. Contractual Obligations, etc................................ 15
4.7.1. Nature of Contracts ................................ 15
4.7.2. Charter or By-Laws ................................. 16
4.7.3. Insurance .......................................... 16
4.7.4. Transactions with Affiliates ....................... 16
4.8. Operations in Conformity With Law, etc...................... 16
4.9. Environmental Matters ...................................... 16
4.10. ERISA Matters .............................................. 17
4.11. Labor Relations ............................................ 17
4.12. Taxes ...................................................... 18
4.13. Litigation ................................................. 18
4.14. Violation of Other Instruments ............................. 18
4.15. Filings, Broker's Fees, etc................................. 19
4.16. SBA Matters ................................................ 19
4.17. SBIC Company Awareness ..................................... 19
4.18. SBIC Eligibility ........................................... 19
4.19. Governmental Regulation .................................... 19
4.20. Margin Stock ............................................... 19
4.21. Real Property Holding Corporation........................... 19
4.22. Disclosure ................................................. 20
5. GENERAL COVENANTS ................................................ 20
5.1. Covenants Relating to the Company's Board of Directors ..... 20
5.1.1. Observation Rights ................................. 20
5.2. Information and Reports to be Furnished .................... 20
5.2.1. Annual Statements .................................. 21
5.2.2. Quarterly Reports .................................. 21
5.2.3. Monthly Reports .................................... 21
5.2.4. Annual Budgets ..................................... 21
5.2.5. Officers' Certificates ............................. 21
5.2.6. Notice of Litigation, Defaults, etc. ............... 22
5.2.7. Information Provided to Stockholders ............... 22
5.2.8. Information Furnished under Other Agreements ....... 22
5.2.9. Other Information .................................. 22
5.2.10. Annual Information Meeting.......................... 22
5.3. Conduct of Business ........................................ 23
5.3.1. Type of Business ................................... 23
5.3.2. Maintenance of Properties, etc. .................... 23
5.3.3. Compliance with Laws and Material Contracts......... 23
(ii)
5.3.4. Insurance ...................................... 23
5.3.5. Foreign Qualification ...........................24
5.4. Charter Amendment, etc ..................................24
5.5. Merger, Consolidation and Sale of Assets.................24
5.6. Indebtedness ............................................25
5.7. Guarantee ...............................................25
5.8. Lien ....................................................26
5.9. Investments and Acquisitions.............................27
5.10. Distributions ...........................................28
5.11. Capital Expenditures ....................................28
5.12. [Intentionally omitted] .................................28
5.13. Stock Issuance, etc ....................................28
5.14. Amendment of Material Contracts, etc.....................29
5.15. Transactions with Affiliates ............................29
5.16. Compliance with ERISA, etc...............................30
5.17. SBA Requirements .......................................30
5.17.1. Inspection ......................................30
5.17.2. Information ....................................30
5.17.3. Non-Discrimination ..............................31
5.17.4. Right of First Offer ............................31
5.18. Annual Meeting ..........................................31
5.19. Listing of Shares .......................................31
5.20. Real Property Holding Corporation........................31
5.21. Regulatory Compliance Cooperation........................32
5.21.1. Exchange for Nonvoting Securities ...............32
5.21.2. Future Securities Issuances .....................32
5.22. Environmental Laws ......................................33
5.22.1. Compliance with Law and Permits .................33
5.22.2. Notice of Claims, etc ...........................33
5.23. Compliance Program ......................................33
5.24. Acquisition Diligence ...................................33
5.25. Shares Reserved .........................................34
6. INVESTOR SECURITIES; RESTRICTIONS ON
TRANSFER ....................................................34
6.1. Representations and Warranties of the Investor...........34
6.2. Home Office Payment .....................................35
6.3. Replacement of Lost Securities ..........................35
6.4. Transfer, Exchange and Conversion of Investor Securities 35
6.5. Restrictions on Transfer ................................36
6.5.1. Restrictive Legend ..............................36
6.5.2. Notice of Proposed Transfer Obligations
of Counsel.....................................36
(iii)
6.5.3. Termination of Restrictions.....................................37
7. EXPENSES, ETC ............................................................... 37
7.1. Expenses .............................................................. 37
7.2. Indemnification........................................................ 37
7.3. Environmental Indemnification.......................................... 38
7.4. Survival .............................................................. 38
8. NOTICES ..................................................................... 38
9. CONFIDENTIALITY ............................................................. 39
10. AMENDMENTS AND WAIVERS....................................................... 39
11. SURVIVAL AND TERMINATION OF COVENANTS, REPRESENTATIONS AND WARRANTIES........ 39
12. SERVICE OF PROCESS........................................................... 39
13. WAIVER OF JURY TRIAL......................................................... 40
14. GENERAL...................................................................... 40
(iv)
SECURITIES PURCHASE AGREEMENT
This Agreement, dated as of October __, 1997, is by and between Physician
Health Corporation, a Delaware corporation (the "Company") and Paribas
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Principal Incorporated, a New York corporation, (the "Investor"). The
parties agree as follows:
1. DEFINITIONS. Certain capitalized terms are used in this Agreement as
specifically defined below in this Section 1. Except as the context
otherwise explicitly requires, (a) the capitalized term "Section" refers to
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sections of this Agreement, (b) the capitalized term "Exhibit" refers to
exhibits to this Agreement, (c) references to a particular Section include
all subsections thereof, (d) the word "including" shall be construed as
"including without limitation," (e) accounting terms not otherwise defined
herein have the meaning provided under GAAP, (f) references to a particular
statute or regulation include all rules and regulations thereunder and any
successor statute, regulation or rules, in each case as from time to time in
effect and (g) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement and the
other Investor Agreements. References to "the date hereof" mean the date
first set forth above.
1.1. "Affiliate" means any Person directly or indirectly controlling,
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controlled by or under direct or indirect common control with the Company (or
other specified person) and shall include (a) any Person who is an officer,
director or beneficial holder of at least 10% of the outstanding capital
stock of the Company (or other specified person), (b) any Person of which the
Company (or other specified Person) or an Affiliate (as defined in clause (a)
above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of the outstanding equity
securities or constitute at least a 10% participant, and (c) in the case of a
specified Person who is an individual, Members of the Immediate Family of
such Person; provided, however, that the Investor and its Affiliates shall
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not be Affiliates of the Company for purposes of this Agreement.
1.2. "Applicable Health Care Laws" is defined in Section 5.23.
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1.3. "Balance Sheet" is defined in Section 4.4.
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1.4. "Balance Sheet Date" is defined in Section 4.4.
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1.5. "By-laws" means all written rules, regulations, procedures and by-
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laws and all other similar documents, relating to the management, governance
or internal regulation of a Person other than an individual, or interpretive
of the Charter of such Person, each as from time to time amended or modified.
1.6. "Capital Expenditures" means amounts which should in accordance
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with GAAP be added to the fixed assets account on the consolidated balance
sheet of the Company and its Subsidiaries, in respect of (a) the acquisition,
construction, improvement or replacement of assets or leaseholds, and (b) to
the extent related to and not included in clause (a) above, expenditures on
account of materials, contract labor and direct labor (excluding expenditures
properly chargeable to repairs and maintenance in accordance with generally
accepted accounting principles).
1.7. "Capitalized Lease" means any lease which is or should be
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capitalized on the balance sheet of the lessee in accordance with GAAP and
Statement No. 13 of the Financial Accounting Standards Board.
1.8. "Certificate of Designation" is defined in Section 2.1.
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1.9. "CFR" is defined in Section 4.16.
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1.10. "Charter" means the articles of organization, certificate of
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incorporation, statute, constitution, joint venture or partnership agreement,
management agreement or other charter of any Person other than an individual,
each as from time to time amended or modified.
1.11. "Closing" is defined in Section 2.3.
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1.12. "Closing Date" is defined in Section 2.3.
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1.13. "Code" means the federal Internal Revenue Code of 1986, as
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amended.
1.14. "Common Stock" means the Voting Common Stock, $0.0025 par value,
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of the Company.
1.15. "Commission" means the Securities and Exchange Commission or any
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other federal agency at the time administering the Securities Act, the
Exchange Act or both.
1.16. "Company" is defined in the first paragraph of this Agreement.
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1.17. "Compensation" as applied to any Person means the aggregate of all
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salaries, compensation, remuneration or bonuses of any character, retirement
or pension benefits of any kind, or other payments of any kind whatsoever
(other than health and medical benefits made available to employees generally
and advances and reimbursements of business expenses) made directly or
indirectly by the Company, any of its Subsidiaries or other specified Persons
to such Person and Affiliates of such Person.
1.18. "Consolidated", when used with reference to any term, means that
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term as applied to the accounts of the Company or other indicated Person and
each of its respective Subsidiaries, consolidated or combined in accordance
with GAAP after eliminating all inter-company items and with appropriate
deductions for minority interests in Subsidiaries.
1.19. "Contractual Obligation" means, with respect to any Person, any
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contracts, agreements, deeds, mortgages, leases, licenses, other instruments,
commitments, undertakings, arrangements or understandings, written or oral,
or other documents, including any Charter or By-law provisions and any
document or instrument evidencing Indebtedness, to which any such Person is a
party or otherwise subject to or bound by or to which any asset of any such
Person is subject.
1.20. "Conversion Warrants" means the warrants to purchase Common Stock
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at the conversion price of the Preferred Stock in substantially the form of
Exhibit 2.1A issuable upon a voluntary prepayment of the Preferred Stock in
accordance with section 6.3 of the Certificate of Designation.
1.21. "Credit Agreement" means the Credit Agreement, dated as of October
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__, 1997 among the Company, the financial institutions party thereto, from
time to time, and Banque Paribas, as Agent, as amended, supplemented or
refinanced from time to time.
1.22. "Credit Documents" shall have the meaning provided in the Credit
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Agreement.
1.23. "Distribution" means (a) the declaration or payment of any
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dividend on or in respect of any shares of any class of capital stock of the
Company, any of its Subsidiaries or other specified Person, other than
dividends payable solely in shares of the common stock of the payor; (b) the
purchase, redemption or other retirement of any shares of any class of
capital stock of the Company, any of its Subsidiaries or other specified
Person directly, or indirectly through a Subsidiary or otherwise; or (c) any
other distribution on or in respect of any shares of any class of capital
stock of the Company, any of its Subsidiaries or other specified Person.
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1.24. "Employee Benefit Plan" means each "employee benefit plan" as
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defined in section 3(3) of ERISA, maintained or contributed to by the Company
or any member of an ERISA Group in which the Company is a member, or in which
the Company or any member of an ERISA Group in which the Company is a member
participates or participated and which provides benefits to employees of the
Company or their spouses or covered dependents or with respect to which the
Company has or may have a material liability, including (i) any such plans
that are "employee welfare plans" as defined in section 3(1) of ERISA and
(ii) any such plans that are "employee pension benefit plans" as defined in
section 3(2) of ERISA.
1.25. "Environmental Laws" means all applicable federal, state or local
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statutes, laws, ordinances, codes, rules, regulations and guidelines
(including consent decrees and administrative orders) relating to public
health and safety and protection of the environment.
1.26. "Equity Call Agreement" means the Equity Call Agreement, dated as
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of June 16, 1997, among the Company, Metroplex Hematology/Oncology
Associates, L.L.P., Weston Presidio Capital Partners II, L.P. and the other
investors thereto.
1.27. "Equity Call Agreement Joinder" means the Joinder to Equity Call
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Agreement, dated October __, 1997, among the Company, Metroplex
Hematology/Oncology Associates, L.L.P., Weston Presidio Capital Partners II,
L.P., Paribas Principal Incorporated, and the other investors party thereto.
1.28. "ERISA" means the federal Employee Retirement Income Security Act
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of 1974, as amended.
1.29. "ERISA Group", with respect to any entity, means any Person which
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is a member of the same "controlled group" or under "common control", within
the meaning of section 414(b) or (c) of the Code or section 4001(b)(1) of
ERISA, with such entity.
1.30. "Exchange Act" means the federal Securities Exchange Act of 1934,
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as amended.
1.31. "GAAP" means generally accepted accounting principles, as in
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effect from time to time, applied on a basis consistent with that used in
preparation of the financial statements referred to in Section 4.4,
consistently applied.
1.32. "Guarantee" means (a) any guarantee of the payment or performance
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of, or any contingent obligation in respect of, any Indebtedness or other
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obligation of any other Person, (b) any other arrangement whereby credit is
extended to one obligor on the basis of any promise or undertaking of another
Person (i) to pay the Indebtedness of such obligor, (ii) to purchase any
obligation owed by such obligor, or (iii) to maintain the capital, working
capital, solvency or general financial condition of such obligor, whether or
not such arrangement is disclosed in the balance sheet of such other Person
or is referred to in a footnote thereto, and (c) any liability of the Company
or any of its Subsidiaries as general partner of a partnership or as a
venturer in a joint venture in respect of Indebtedness or other obligations
of such partnership or venture; provided, however, that in no event shall
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Guarantees include product warranties given in the ordinary course of
business.
1.33. "Hazardous Material" is defined in Section 4.9.
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1.34. "Indebtedness" means (a) all debt for borrowed money and similar
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monetary obligations evidenced by bonds, notes, debentures, capitalized lease
obligations, deferred purchase price of property (other than ordinary trade
payables) or otherwise, whether direct or indirect; and (b) all liabilities
secured by any Liens existing on property owned or acquired, whether or not
the liability secured thereby shall have been assumed.
1.35. "Indemnitees" is defined in Section 7.2.
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1.36. "Investment" means (a) any share of capital stock, evidence of
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Indebtedness or other security issued by any other Person, (b) any loan,
advance, or extension of credit to, or contribution to the capital of, any
other Person, (c) any purchase of the securities or assets constituting a
business or a division or similar portion of the business of any other
Person, (d) any commitment or option to make such an investment if, in the
case of an option, the consideration therefor exceeds $100, and (e) any other
investment; provided, however, that the term "Investment" shall not include
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(i) current trade and customer accounts receivable arising in the ordinary
course of business and payable in accordance with customary trade terms or
prepaid assets arising in the ordinary course of business, (ii) advances to
employees for travel expenses, drawing accounts and similar expenditures,
(iii) stock or other securities acquired in connection with the satisfaction
or enforcement of Indebtedness or claims due to the Company or any of its
Subsidiaries or as security for any such Indebtedness or claim or (iv) demand
deposits in banks or trust companies. The amount of an Investment
outstanding at any time shall be determined in accordance with GAAP;
provided, however, that no Investment shall be increased as a result of an
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increase in the undistributed retained earnings of the Person in whom an
Investment was made or decreased as a result of an equity in the losses of
any such Person.
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1.37. "Investor Agreements" means this Agreement, the Certificate of
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Designation, the Stockholders Agreement, the Registration Rights Agreement,
the Warrants, the Equity Call Agreement, any joinders executed with respect
to any such agreements, any other agreement or instrument entered into
between the Company and the Investor and any amendment or modification to any
of the foregoing.
1.38. "Investor Securities" is defined in Section 2.1.
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1.39. "Investor" shall have the meaning provided in first paragraph of
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this Agreement.
1.40. "Legal Requirement" means any federal, state, local or foreign
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law, statute, standard, ordinance, code, order, rule, regulation, resolution,
promulgation or any final order, judgment or decree of any court, arbitrator,
tribunal or governmental authority, or any license, franchise, permit or
similar right granted under any of the foregoing.
1.41. "Lien" means (a) any mortgage, pledge, lien, charge, security
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interest or other similar encumbrance upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any conditional
sale or other title retention agreement or arrangement (including a
Capitalized Lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles or chattel paper, with or
without recourse.
1.42. "Liquidity Event" shall have the meaning provided in section 2 of
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the Certificate of Designation.
1.43. "Margin Stock" means "margin stock" within the meaning of any
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regulation, interpretation or ruling of the Board of Governors of the Federal
Reserve System, all as from time to time in effect.
1.44. "Material Adverse Effect" means a material adverse effect upon the
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business, assets, financial condition or income of the Company and its
Subsidiaries on a Consolidated basis.
1.45. "Material Contracts" shall have the meaning provided in the Credit
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Agreement.
1.46. "Members of the Immediate Family," as applied to any individual,
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means each parent, spouse, child, brother, sister or the spouse of a child,
brother or sister of the individual, and each trust created for the benefit
of one or more of such persons and each custodian of a property of one or
more such persons.
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1.47. "Non-Voting Common Stock" means the Non-Voting Common Stock,
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$0.0025 par value, of the Company.
1.48. "Original Securities Purchase Agreement" is defined in Section
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2.3.
1.49. "Pension Plan" means each pension plan (as defined in section 3(2)
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of ERISA) established or maintained, or to which contributions are or were
made since March 1, 1993, by the Company or any of its Subsidiaries or former
Subsidiaries, or any Person which is a member of the same ERISA Group with
any of the foregoing.
1.50. "Person" means an individual, partnership, corporation, company,
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association, trust, joint venture, unincorporated organization, business
trust, limited liability company and any governmental department or agency or
political subdivision.
1.51. "Preferred Director" means the member of the Board of Directors of
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the Company who is appointed by the holders of Series B Preferred Stock.
1.52. "Preferred Stock" means the voting and the non-voting Series B
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Redeemable Convertible Preferred Stock, par value $0.01 per share, of the
Company.
1.53. "Prime Common Stock" means the Prime Common Stock, $0.0025 par
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value, of the Company.
1.54. "Principal Holder" shall mean the Investor and any transferee of
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the Investor so long as any such Person owns 25% of the Preferred Stock or
Warrants issued pursuant to this Agreement (as adjusted for stock splits,
stock dividends and reverse stock splits) or 25% of the Common Stock issuable
upon conversion or exercise of the Preferred Stock and the Warrants issued
pursuant to this Agreement (as adjusted for stock splits, stock dividends and
reverse stock splits).
1.55. "Projections" has the meaning provided in the Credit Agreement.
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1.56. "Purchase Price Escrow" is defined in Section 2.4.
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1.57. "Purchase Warrants" means the warrants to purchase Common Stock
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issued in substantially the form of Exhibit 2.1B, issuable pursuant to the
terms of this Agreement and the Original Securities Purchase Agreement.
1.58. "Registration Rights Agreement" means the registration rights
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agreement dated as of October __ 1997, by and among the Company, the
Investor, Paribas Capital Funding LLC, and certain other shareholders of the
Company.
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1.59. "Regulatory Problem" means any event, action or circumstance, the
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occurrence of which is reasonably likely to result in a violation of the
Small Business Investment Act or the Bank Holding Company Act of 1956, as
amended, and the regulations promulgated thereunder or any similar, related
or successor laws regulating banks, bank holding companies, insurance
companies, insurance holding companies, SBICs and the respective
subsidiaries.
1.60. "Remedy Event" is defined in section 7 of the Certificate of
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Designation.
1.61. "Required Holders" means the holders at the relevant time
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(excluding the Company or any of its Subsidiaries) of at least two thirds of
the voting power of all outstanding Preferred Stock and Warrants (calculated
to give pro forma effect to the conversion of all Preferred Stock and the
exercise of all Warrants) issued pursuant to this Agreement and the Original
Securities Purchase Agreement, voting together as a single class.
1.62. "Representative" is defined in Section 5.1.1.
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1.63. "Restricted Shares" shall have the meaning provided in the
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Stockholders Agreement.
1.64. "SBA" is defined in Section 3.5.
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1.65. "SBA Forms" is defined in Section 3.5.
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1.66. "SBIC" means a small business investment company licensed by the
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SBA pursuant to the Small Business Investment Act.
1.67. "Securities Act" means the federal Securities Act of 1933, as
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amended.
1.68. "Securities Escrow" is defined in Section 2.3.
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1.69. "Senior Debt Documents" means the Credit Agreement and the other
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Credit Documents, in each case as amended (including by any amendment and
restatement), supplemented, modified or extended from time to time including
each loan or credit agreement and other related agreements extending the
maturity of, replacing, refinancing, refunding, or otherwise restructuring
(including, without limitation, increasing the amount of the available
borrowings thereunder), in whole or in part, the debt under the Credit
Agreement, whether by the same or any other agent, lender or group of
lenders.
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1.70. "Small Business Investment Act" is defined in Section 4.16.
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1.71. "Stockholders Agreement" is defined in Section 3.1.
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1.72. "Stockholders' Equity" means, at any date, stockholders' equity of
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the Company and its Subsidiaries determined in accordance with GAAP on a
Consolidated basis, excluding the effect of any foreign currency translation
adjustments.
1.73. "Subsidiary" means any Person of which the Company or other
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specified Person now or hereafter shall at the time (a) own directly or
indirectly through a Subsidiary in excess of 50% of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally or
(b) constitute a general partner.
1.74. "Subordinated Loan Agreement" means the Senior Subordinated Loan
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Agreement, dated as of October __, 1997, by and among the Company, Paribas
Capital Funding LLC and the other financial institutions from time to time
party thereto, as amended, supplemented or refinanced from time to time.
1.75. "Warrants" mean, collectively, the Conversion Warrants and the
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Purchase Warrants.
1.76. "Welfare Plan" means each welfare plan as defined in section 3(1)
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of ERISA established or maintained, or to which any contributions are or were
made since March 1, 1993, by the Company or any of its Subsidiaries or any
Person which is a member of the same ERISA Group with any of the foregoing.
2. SALE AND PURCHASE OF SECURITIES.
2.1. Investor Securities. The Preferred Stock and Purchase Warrants
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being purchased by the Investor hereunder, together with any securities
issued with respect thereto, upon exercise, conversion or transfer thereof or
in exchange therefor, including the Common Stock issuable upon conversion of
the Preferred Stock and the Conversion Warrants issuable upon a voluntary
redemption of the Preferred Stock (and the Common Stock issuable upon
exercise or conversion of the Warrants), are collectively referred to as
"Investor Securities"; provided, however, that once any such securities have
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been sold in a Liquidity Event they shall cease to be Investor Securities for
all purposes of this Agreement. The powers, preferences and rights of the
Preferred Stock are set forth in the Company's Charter as amended through the
date hereof, including the Certificate of Designation, Preferences and Rights
for the Preferred Stock, as amended through the date hereof, in the form set
forth in Exhibit 2.1C (the "Certificate of Designation").
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2.2. Agreement to Sell and Purchase. Based on the Investor's
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representations and warranties contained in Section 6, the Company agrees to
issue and sell to the Investor and, subject to all of the terms and
conditions hereof and in reliance on the representations and warranties of
the Company set forth or referred to herein, the Investor agrees to purchase
at the Closing the number of shares of Investor Securities specified in
Exhibit 1 at the purchase price, payable by wire transfer or Investor check,
so specified in such Exhibit.
2.3. Closing. The closing of the purchase and sale of Investor
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Securities (the "Closing") shall take place in New York, New York at the
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offices of White & Case on October __, 1997 (the "Closing Date") or on such
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other date as the Company and the Investor may agree upon. At the Closing
the Company will deliver to the Investor certificates evidencing the
respective Investor Securities set forth in Exhibit 1 for the Closing against
payment of the purchase price therefor in immediately available funds.
The shares of capital stock of the Company held pursuant to the
Securities Escrow (the "Securities Escrow") established pursuant to Section
2.3 of the Securities Purchase Agreement, dated as of June 16, 1997, among
the Company, Weston Presidio Capital II, L.P. and certain other investors
(the "Original Securities Purchase Agreement"), shall be held for the benefit
of the Investor and each of the investors under the Original Securities
Purchase Agreement.
2.4. Equity Call Agreement. On any date requested in accordance with
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the Equity Call Agreement (which date shall be between April 1, 1998 and
April 13, 1998), the Investor shall pay to the Company the purchase price for
the Investor Securities set forth opposite its name in Exhibit 1 to the
Equity Call Agreement Joinder, as provided in the Equity Call Agreement and
the Equity Call Agreement Joinder. Upon such payment, Weston Presidio
Capital II, L.P. shall release the certificates representing the number of
Investor Securities as is set forth in Exhibit 1 to the Equity Call
Agreement, as amended by the Equity Call Agreement Joinder, from the
Securities Escrow to the Investor. Any Investor Securities still remaining
in the Securities Escrow on April 14, 1998 shall be returned to the Company.
2.5. Use of Proceeds. The Company agrees that it will use the proceeds
---------------
from the sale of the shares for general corporate and working capital
purposes (including to effect the acquisition of physician practices) and not
for any purpose that would be a violation of 13 CFR 107.720.
3. CONDITIONS TO PURCHASE. The Investor's obligation to purchase the
Investor Securities pursuant to this Agreement on the Closing Date is subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions:
-10-
3.1. Investor Agreements. The Company and its stockholders party
-------------------
thereto shall have duly authorized, executed and delivered to the Investor
each of the Investor Agreements, in form and substance satisfactory to the
Investor.
3.2. Investor Securities. The Company shall have issued to the
-------------------
Investor the number of shares of Preferred Stock and Purchase Warrants shown
in Exhibit 1 for an aggregate consideration as shown in Exhibit 1.
3.3. Legal Opinion. On the Closing Date, the Investor shall have
-------------
received from ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P., counsel to the Company and its
Subsidiaries, their opinion in substantially the form of Exhibit 3.3. The
Company hereby authorizes its counsel to deliver such opinion.
3.4. Representations and Warranties; Officer's Certificate. The
-----------------------------------------------------
representations and warranties contained herein shall be true and correct on
and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date; between the Balance Sheet Date and the Closing
Date, no Material Adverse Effect shall have occurred; the Company shall have
performed all obligations required to be performed by it under the Investor
Agreements; and the Investor shall have received on the Closing Date a
certificate to these effects signed by the Chairman and the President of the
Company.
3.5. SBIC Forms. On the date hereof, the Investor shall have received
----------
from the Company fully executed Small Business Administration ("SBA") Forms,
480, 652 and 1031 (the "SBA Forms").
3.6. Key Executive Insurance. The Company will have in full force and
-----------------------
effect as the owner thereof on the Closing Date key executive life insurance
policies with a financially sound and reputable insurer in the aggregate
amount of at least $1,000,000 covering the life of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, the
proceeds of which shall be payable to the Company.
3.7. Legality; Governmental Authorization. The purchase of the
------------------------------------
Investor Securities shall not be prohibited by any law or governmental order
or regulation, and shall not subject the Investor to any penalty or special
tax (other than a penalty or special tax that has been reimbursed by the
Company). All necessary consents, approvals, licenses, permits, orders and
authorizations of, or registrations, declarations or filings with, any
governmental or administrative agency or of any other Person, if any, with
respect to any of the transactions contemplated by this Agreement or the
other Investor Agreements, the absence of which could have a Material Adverse
Effect, shall have been duly obtained or made and shall be in full force and
effect.
-11-
3.8. Certificate of Designation. The amended Certificate of
--------------------------
Designation shall have been filed with the Secretary of State of the State of
Delaware.
3.9. General. All instruments and legal and corporate proceedings in
-------
connection with the transactions contemplated by this Agreement, the other
Investor Agreements and the Material Contracts shall be reasonably
satisfactory in form and substance to the Investor, and the Investor shall
have received copies of all documents, including records of corporate
proceedings and officers certificates, which the Investor may have reasonably
requested in connection therewith.
3.10. Credit Agreement. All conditions to the incurrence of the initial
----------------
loans under the Credit Agreement shall have been satisfied and the initial
borrowing thereunder shall have occurred.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Investor to enter
into this Agreement and to purchase the Investor Securities hereunder, the
Company represents and warrants as follows:
4.1. Credit Agreement. The Company hereby makes each of the
----------------
representations and warranties contained in the Credit Agreement and each
such representation and warranty contained in the Credit Agreement shall be
deemed incorporated herein by reference.
4.2. Organization and Subsidiaries; Business.
---------------------------------------
4.2.1. The Company. The Company is a duly organized and validly
-----------
existing corporation in good standing under the laws of Delaware. The
Company has all necessary corporate power and authority to enter into and
perform this Agreement and the other Investor Agreements to which it is
party, to issue and sell the Investor Securities to be issued and sold by it
hereunder, and to carry on the businesses now conducted or presently proposed
to be conducted by it. The Company has taken all corporate action necessary
to authorize the Investor Agreements to which it is party and the issuance of
the Investor Securities to be issued and sold by it hereunder. The Investor
Agreements to which the Company is party and the Investor Securities to be
issued and sold by the Company hereunder have been duly executed and
delivered by the Company and are the legal, valid and binding obligations of
the Company, enforceable in accordance with their terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting generally the enforcement of creditors rights and
general principles of equity.
-12-
4.2.2. Subsidiaries. The Company does not own or control,
------------
directly or indirectly, or have an interest in, any other corporation,
partnership, association or business entity, except for the Persons described
in Exhibit 4.2.2.
4.2.3. Conduct of Business. The Company has conducted no business
-------------------
other than (a) managing the operations of physician or dental group practices
or other providers of physician or dental services; (b) managing the
operations of lines of diagnostic and treatment businesses ancillary or
related to physician or dental group practices or other providers of
physician or dental services; and (c) negotiating and administrating managed
care contracts between insurance companies or other medical payors and
physician or dental group practices or other providers of physician or dental
services; and (d) operating physician practices through the employment by
subsidiaries of physicians and other ancillary personnel.
4.3. Capitalization.
--------------
4.3.1. Capital Stock of the Company. The authorized capital stock
----------------------------
of the Company is set forth in Exhibit 4.3.1. On the Closing Date, after
giving effect to the issuance of the Investor Securities and the consummation
of the Investor Agreements, the Company will have no outstanding capital
stock except for the shares of Voting Common Stock, Non-Voting Common Stock,
Prime Stock, Class A Stock and Preferred Stock owned beneficially and of
record as set forth in Exhibit 4.3.1, all of which will be validly issued,
fully paid, nonassessable and, to the best knowledge of the Company, subject
to no lien or restriction on transfer, except restrictions on transfer
imposed by the Investor Agreements and applicable securities laws or as
otherwise set forth in Exhibit 4.3.1. As of the date hereof, sufficient
shares of the Company's Common Stock have been authorized and duly reserved
for issuance upon conversion of the Series B Preferred Stock and Warrants.
4.3.2. Options, etc. Other than as set forth in Exhibit 4.3.1 or
------------
in the Investor Agreements or Material Contracts, the Company does not have
outstanding (a) any rights (either preemptive or otherwise) or options to
subscribe for or purchase, or any warrants or other agreements providing for
or requiring the issuance of, any capital stock or any securities convertible
into or exchangeable for its capital stock, (b) any obligation to repurchase
or otherwise acquire or retire any of its capital stock, any securities
convertible into or exchangeable for its capital stock or any rights, options
or warrants with respect thereto, (c) any rights to require the Company to
register the offering of any of its securities under the Securities Act or
(d) any restrictions on voting any of the Company's securities.
4.3.3. Capital Stock of the Subsidiaries. The authorized capital
---------------------------------
stock of each Subsidiary of the Company is set forth in Exhibit 4.3.3. Each
such
-13-
Subsidiary has no outstanding capital stock except for shares of capital
stock owned beneficially and of record, as set forth in Exhibit 4.3.3, by the
Company, all of which will be validly issued, fully paid, nonassessable and
subject to no lien or restriction on transfer, except restrictions on
transfer imposed by the Investor Agreements and applicable securities laws
and Liens.
4.3.4. Subsidiary Options, etc. Except as set forth in Exhibit
-----------------------
4.3.3 hereto, none of the Company's Subsidiaries has outstanding (a) any
rights (either preemptive or otherwise) or options to subscribe for or
purchase, or any warrants or other agreements providing for or requiring the
issuance of, any capital stock or any securities convertible into or
exchangeable for its capital stock, (b) any obligation to repurchase or
otherwise acquire or retire any of its capital stock, any securities
convertible into or exchangeable for its capital stock or any rights, options
or warrants with respect thereto, (c) any rights to require the Subsidiary to
register the offering of any of its securities under the Securities Act or
(d) any restrictions on voting any of the Subsidiary's securities.
4.4. Reports, Financial Statements and Other Documents. The Investor
-------------------------------------------------
has been furnished with complete and correct copies of the following:
(a) Audited consolidated balance sheet of the Company and its
Subsidiaries as of June 30, 1997, together with the related statements
of income, cash flows and stockholders' equity for the year then
ended, accompanied by the audit report of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co.
(b) Unaudited consolidated balance sheet (the "Balance Sheet") of
the Company and its Subsidiaries as of August 30, 1997 (the "Balance
Sheet Date"), together with related statements of income, cash flows
and stockholders' equity for the period then ended.
(c) The Projections.
The financial statements referred to in clause (a) above have been
prepared in accordance with GAAP and fairly present the financial condition
of the Company and its Subsidiaries at the dates thereof and the results of
their operations for the periods covered thereby. Except as set forth in
Exhibit 4.4 or the Material Contracts, neither the Company nor any of its
Subsidiaries has any material liabilities, contingent or otherwise, which are
not referred to in the Balance Sheet.
The Projections were based on (i) assumptions and accounting methods
consistent with the historical financial statements described in paragraph
(a) above and (ii) the financings contemplated hereby. To the best knowledge
of the Company the
-14-
Projections constitute a reasonable basis for assessing the future
performance of the Company and its Subsidiaries, but no representation or
warranty is made that the Company and its Subsidiaries can actually achieve
the results set forth in the Projections.
4.5. Changes in Condition. Since the Balance Sheet Date:
--------------------
4.5.1. Material Adverse Effect. No Material Adverse Effect has
-----------------------
occurred.
4.5.2. Extraordinary Transactions, etc. Except as set forth in
-------------------------------
the Material Contracts or Exhibit 4.5.2, since the Balance Sheet Date neither
the Company nor any of its Subsidiaries has (a) declared any dividend or
other distribution on any shares of its capital stock, (b) made any payment
(other than compensation of its directors, officers and employees at rates in
effect prior to the Balance Sheet Date or for bonuses accrued in accordance
with normal practice prior to the Balance Sheet Date) to any of its
Affiliates, (c) increased the Compensation, including bonuses, payable or to
be payable to any of its directors, officers, employees or Affiliates, or (d)
entered into any Contractual Obligation, or entered into or performed any
other transaction, not in the ordinary and usual course of business and
consistent with past practice, other than as specifically contemplated by
this Agreement.
4.6. Solvency. After giving effect to the financing contemplated
--------
hereby, the Company is solvent (within the meaning contemplated by section
548 of Title 11 of the United States Code and any similar state statutes
which may be applicable).
4.7. Contractual Obligations, etc.
----------------------------
4.7.1. Nature of Contracts. All of the Contractual Obligations of
-------------------
the Company and its Subsidiaries at the Closing are enforceable against the
Company and, to its knowledge, the other parties thereto in accordance with
their terms, except for Contractual Obligations the failure of which to be so
enforceable does not and will not result in a Material Adverse Effect;
provided, however, that no representation is made as to the enforceability of
noncompetition covenants under state law. To the Company's knowledge,
neither the Company nor any of its Subsidiaries is now in default under, nor
are there any liabilities arising from any breach or default by any Person
prior to the date hereof, any provision of any such Contractual Obligation,
except as would not be reasonably likely to result in a Material Adverse
Effect.
4.7.2. Charter or By-Laws. Neither the Company nor any of its
------------------
Subsidiaries is in violation of, or in default under, any provision of its
Charter or By-Laws and the Investor has been furnished with copies of such
Charter and By-Laws.
-15-
4.7.3. Insurance. Each of the Company and its material
---------
Subsidiaries has insurance policies in full force and effect, written by
reputable insurers licensed to write insurance in the states in which the
Company and its Subsidiaries conduct their business, which insurance
contracts provide for coverages which are usual and customary in their
respective businesses as to amount and scope.
4.7.4. Transactions with Affiliates. To the Company's knowledge,
----------------------------
other than as set forth in Exhibit 4.7, no Affiliate of the Company or its
Subsidiaries is a competitor, customer or supplier of, or is party to any
Contractual Obligation with, the Company or any of its Subsidiaries.
4.8. Operations in Conformity With Law, etc. The operations of the
--------------------------------------
Company and its Subsidiaries as now conducted are not in violation of, nor
are the Company or its Subsidiaries in default under, any Legal Requirements
presently in effect, except for such violations and defaults as do not and
will not, in the aggregate, have a Material Adverse Effect. The Company has
received no notice of any such violation or default and has no knowledge of
any basis on which the operations of the Company or its Subsidiaries, when
conducted as currently proposed to be conducted after the Closing Date, would
be held so as to violate or to give rise to any such violation or default.
The Company and its Subsidiaries have all franchises, licenses, permits or
other authority presently necessary for the conduct of their business as now
conducted, except for such franchises, licenses, permits or other authority
the absence of which would not be reasonably likely to result in a Material
Adverse Effect. Based on the facts presently known to the Company, all
future expenditures on the part of the Company or its Subsidiaries required
to meet the provisions of any presently existing Legal Requirement (including
Legal Requirements relating to employment practices or to occupational or
health standards or to environmental considerations) will not, in the
aggregate, have a Material Adverse Effect.
4.9. Environmental Matters. Each of the Company and its Subsidiaries
---------------------
is in compliance in all material respects with all applicable published rules
and regulations of the United States Environmental Protection Agency and
similar agencies in states in which the Company or its Subsidiaries conducts
its business, except for such non-compliance which would not be reasonably
likely to result in a Material Adverse Effect. No suit, claim, action or
proceeding is now pending before any court, governmental agency or board or
other forum or threatened by any Person for, and the Company and its
Subsidiaries have received no written correspondence from any federal, state
or local governmental authority with respect to, (a) noncompliance by the
Company or its Subsidiaries with any environmental law, rule or regulation,
(b) personal injury, wrongful death or other tortious conduct relating to
materials, commodities or products used, sold, transferred or manufactured by
the Company or its Subsidiaries (including products containing or
incorporating asbestos, lead or other
-16-
hazardous materials) or (c) the release into the environment by the Company
or its Subsidiaries of any pollutant, toxic or hazardous material or waste
(including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended) (collectively, "Hazardous
---------
Material") generated by the Company or its Subsidiaries whether or not
--------
occurring at or on a site owned, leased or operated by the Company or its
Subsidiaries. To the Company's knowledge, but without having conducted
special boring or drilling, no material amount of Hazardous Material is
present in any real property currently or formerly owned or leased by it or
its Subsidiaries.
4.10. ERISA Matters. Exhibit 4.10 sets forth a complete list of all
-------------
Employee Benefit Plans and all Welfare Plans applicable to the Company's and
its Subsidiaries' employees. To the knowledge of the Company, each Employee
Benefit Plan and Welfare Plan has been administered in substantial compliance
with its terms and all applicable laws, including, the Code and ERISA, to the
extent that failure to do so would have a Material Adverse Effect. The
Company and its Subsidiaries have no obligation under any Welfare Plan to
provide for the continuation of benefits (other than disability payments and
medical benefits incurred for illness arising in the course of employment)
for more than one year after retirement or other termination of employment
except as may be required pursuant to Code section 4980B regarding
continuation coverage of health insurance or other similar laws regarding
such continuation coverage. No "reportable events" within the meaning of
section 4043 of ERISA have occurred with respect to any Employee Benefit
Plan. No Pension Plan is a "multiemployer plan" as defined in section 3(37)
of ERISA. The present value of benefits liabilities as described in Title IV
of ERISA of Employee Benefit Plans does not exceed the current value of such
Employee Benefit Plans assets allocable to such benefits liabilities by more
than $100,000 determined using actuarial methods and assumptions consistently
applied in the ongoing administration of each such Employee Benefit Plan.
4.11. Labor Relations. None of the employees of the Company or any of
---------------
its Subsidiaries is presently represented by a labor union, and to the best
knowledge of the Company no petition has been filed or proceedings instituted
by any employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. No controversies or disputes are
pending between the Company or any of its Subsidiaries and any of its
employees, except for such controversies and disputes as do not and will not,
in the aggregate, have a Material Adverse Effect.
4.12. Taxes. Since March 1, 1993, each of the Company and its
-----
Subsidiaries has filed all material tax and information which are required to
be filed by
-17-
it and has paid, or made adequate provision for the payment of, all taxes
which have or may become due pursuant to such returns or to any assessment
received by it. Neither the Company nor any of its Subsidiaries has
knowledge of any material additional assessments or any basis therefor. The
Company reasonably believes that the charges, accruals and reserves on the
financial statements in respect of taxes or other governmental charges are
adequate.
4.13. Litigation. No litigation or proceeding before, or investigation
----------
by, any foreign, federal, state or municipal board or other governmental or
administrative agency or any arbitrator, is pending or to the knowledge of
the Company threatened (or to the knowledge of the Company does any basis
exist therefor), against the Company or its Subsidiaries or, to the Company's
knowledge, any officer of the Company or its Subsidiaries, which in the
aggregate could result in any material liability or which may otherwise
result in a Material Adverse Effect, or which seeks rescission of, seeks to
enjoin the consummation of, or which questions the validity of, this
Agreement or any other Investor Agreement or any of the transactions
contemplated hereby or thereby. Neither the Company nor its Subsidiaries has
been charged, nor to the Company's knowledge is it threatened to be charged,
with infringement of any trademark, trade name, service ▇▇▇▇, copyright,
patent, patent right or other proprietary right of any Person.
4.14. Violation of Other Instruments. After giving effect to all
------------------------------
consents and waivers obtained by the Company on or prior to the date hereof,
neither the execution and delivery of this Agreement or any other Investor
Agreement by the Company or its Subsidiaries party thereto, nor the
consummation of any of the transactions contemplated hereby or thereby, will
(a) constitute a breach of or a default under any Contractual Obligation of
the Company or its Subsidiaries or, to the Company's knowledge, any executive
officer of the Company or any of its Subsidiaries, (b) result in acceleration
in the time for performance of any obligation of the Company or its
Subsidiaries under any such Contractual Obligation, (c) result in the
creation of any Lien upon any asset of the Company or its Subsidiaries, (d)
require any consent, waiver or amendment to any such Contractual Obligation
that has not been obtained, (e) give rise to any severance payment, right of
termination, securities repurchase right or other right under any such
Contractual Obligation, or (f) violate or give rise to a default under any
Legal Requirement, except for events or conditions described in clauses (a)
through (f) above which will not in the aggregate be reasonably likely to
result in a Material Adverse Effect.
4.15. Filings, Broker's Fees, etc. Except as provided in Exhibit 4.15,
---------------------------
no approval, consent, authorization or other order of, and no declaration,
filing, registration, qualification or recording with, any governmental
authority or any other Person is required to be made by or on behalf of the
Company or its Subsidiaries in
-18-
connection with the execution, delivery or performance of this Agreement or
any other Investor Agreement, or any of the transactions contemplated hereby
or thereby, other than filing the Amended Certificate of Designation and the
Charter of the Company with the Delaware Secretary of State. Except as
provided in Exhibit 4.15, neither the Company nor any of its Subsidiaries is
obligated to pay any broker's fee, finder's fee, investment banker's fee or
other similar transaction fee in connection with any Investor Agreement or
the transactions contemplated hereby or thereby.
4.16. SBA Matters. The Company is a "small business concern" within the
-----------
meaning of the federal Small Business Investment Act of 1958, as amended, and
the regulations thereunder (the "Small Business Investment Act"), and Part
-----------------------------
121 of Title 13 of the United States Code of Federal Regulations ("CFR") by
---
virtue of having tangible net worth together with its affiliates of less than
$18,000,000 as of the end of its last fiscal year and average net income
(after federal taxes) for its last two fiscal years of less than $6,000,000.
All information set forth in the SBA Forms regarding the Company and its
affiliates is accurate and complete. Copies of the SBA Forms have been, on
or prior to the date hereof, completed and executed by the Company and
delivered to the Investor.
4.17. SBIC Company Awareness. The Company acknowledges its awareness
----------------------
that the Investor is a Federal licensee under the Small Business Investment
Act.
4.18. SBIC Eligibility. The Company and its subsidiaries do not engage
----------------
in any activity which would render the Company ineligible to receive
financing assistance from an SBIC as provided in 13 CFR 107.720.
4.19. Governmental Regulation. Neither the Company nor its Subsidiaries
-----------------------
is subject to regulation under the Investment Company Act of 1940, or subject
to any statute or regulation which regulates the incurring of indebtedness by
the Company for borrowed money.
4.20. Margin Stock. Neither the Company nor its Subsidiaries owns any
------------
Margin Stock.
4.21. Real Property Holding Corporation. Neither the Company nor its
---------------------------------
Subsidiaries is a "United States real property holding corporation", as
defined in section 897(c)(2) of the Code and Treasury Regulation section
1.897-2(b).
4.22. Disclosure. To the actual knowledge of the Company, neither this
----------
Agreement, nor any agreement, certificate, statement or document furnished in
writing by or on behalf of the Company to the Investor in connection herewith
or therewith,
-19-
contains any untrue statement of material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein
not misleading in any material respect (except that no representation or
warranty is made as to the Projections).
5. GENERAL COVENANTS. The Company covenants that, with respect to each of
the items set forth in Sections 5.1.1, 5.17, 5.21 and 5.25, which shall
survive for so long as the Investor or any of its Affiliates holds any
Investor Securities, and with respect to each of the other items set forth in
this Section 5, which shall survive until the closing of a Liquidity Event,
it will comply, and will cause each of its Subsidiaries to comply, with the
following provisions:
5.1. Covenants Relating to the Company's Board of Directors.
------------------------------------------------------
5.1.1. Observation Rights. The Company hereby covenants and
------------------
agrees that it shall provide the Investor or its Affiliates with reasonable
notice of all meetings of the Board of Directors of the Company and meetings
of committees which have been delegated any decision making authority by the
Board of Directors of the Company. The Company shall invite or cause to be
invited a representative of the Investor or its Affiliates (a
"Representative") to attend (in person or by telephone, at the
Representative's option if the meeting is not a telephone meeting) each such
Board meeting or such committee meeting. The Representative shall be
provided with all advance materials provided to Board members and such
committee members. At the reasonable request of the Investor, the Company
will allow a Representative to participate in any such meeting by telephone.
Following any such meeting, the Company shall provide the Investor or its
Affiliates with copies of the agenda and minutes with respect thereto,
whether or not a Representative participated in or attended such meeting.
Notwithstanding the foregoing and Section 5.14 of the Subordinated Loan
Agreement, as in effect on the date hereof, the Investor agrees that the
Investor and Paribas Capital Funding LLC shall together be entitled to
designate only one Representative, as shall be mutually agreed upon by them
from time to time.
5.2. Information and Reports to be Furnished. The Company and its
---------------------------------------
Subsidiaries will maintain a system of accounting in which entries that are
correct and complete in all material respects will be made of all material
dealings and material transactions in relation to their business and affairs
in accordance with GAAP. The Company's internal financial control systems
will at all times be reasonably satisfactory to the Required Holders. Until
a Liquidity Event occurs, the Company will furnish the following information
to each Principal Holder:
5.2.1. Annual Statements. As soon as available, and in any event
-----------------
within 90 days after the end of each fiscal year of the Company, the audited
-20-
consolidated balance sheet of the Company and its Subsidiaries as of the end
of such fiscal year and the audited consolidated statements of income,
stockholders' equity and cash flows for such year of the Company and its
Subsidiaries, together with the consolidated figures for the preceding fiscal
year, if any (all in reasonable detail) such statements being accompanied by
the unqualified reports thereon of independent certified public accountants,
reasonably satisfactory to the Required Holders, to the effect that such
consolidated financial statements have been prepared in accordance with GAAP
and present fairly in all material respects the financial position of the
Company and its Subsidiaries as of the dates specified and the results of
their operations and cash flows with respect to the periods specified.
5.2.2. Quarterly Reports. As soon as available, and in any event
-----------------
within 45 days after the end of each of the first three fiscal quarters in
each fiscal year of the Company, the unaudited consolidated balance sheets of
the Company and its Subsidiaries as of the end of such quarter and the
consolidated statements of income, stockholders' equity and cash flows for
such quarter and the portion of the fiscal year then ended of the Company and
its Subsidiaries, together with comparative consolidated figures for the
corresponding periods of the preceding fiscal year (all in reasonable
detail).
5.2.3. Monthly Reports. As soon as practicable, and in any event
---------------
within 30 days after the end of each calendar month, the financial statements
of the Company and its Subsidiaries as of the end of such month in the form
customarily prepared by management for internal use.
5.2.4. Annual Budgets. Not later than the end of each fiscal year
--------------
of the Company a proposed month by month operating and capital budget for the
following fiscal year of the Company, including projected cash flows.
5.2.5. Officers' Certificates. Together with delivery of
----------------------
financial statements of the Company and its Subsidiaries pursuant to Sections
5.2.1 and 5.2.2 above as of the end of each fiscal quarter of the Company, a
certificate of the Chief Executive Officer or the Chief Financial Officer of
the Company, that such statements have been prepared in accordance with GAAP
and present fairly in all material respects the Consolidated financial
position of the Company and its Subsidiaries as of the dates specified and
the results of their operations and cash flows with respect to the periods
specified (subject in the case of interim financial statements only to normal
year-end audit adjustments and the addition of footnotes).
5.2.6. Notice of Litigation, Defaults, etc. The Company will
-----------------------------------
promptly, and in any event within 30 days after the Company has knowledge of
such event, give written notice to each Principal Holder of (a) any
litigation or any
-21-
administrative proceeding to which the Company or any of its Subsidiaries may
hereafter become a party which after giving effect to applicable insurance
would reasonably be expected to result in a charge against income in excess
of $100,000, (b) any resignation of or other change in executive management
of the Company or any serious illness of any member of such executive
management, and (c) any offers to purchase a majority (or greater) interest
in the Company (whether by means of purchase of securities or assets or
otherwise). The Company will promptly, and in any event within seven days
after any officer of the Company or any of its Subsidiaries obtains knowledge
of any Remedy Event or material default by the Company under this Agreement,
any other Investor Agreement or any other Material Contract, furnish notice
to each Principal Holder specifying the nature of the Remedy Event or
material default and stating the action the Company has taken or proposes to
take with respect thereto. Promptly after the receipt thereof, the Company
will furnish to each Principal Holder copies of any reports as to
inadequacies in accounting controls submitted by independent accountants.
5.2.7. Information Provided to Stockholders. Within 10 days after
------------------------------------
its release to stockholders, the Company will furnish the holders of Investor
Securities with copies of all information, proxy statements, notices, reports
and other stockholder material mailed to stockholders.
5.2.8. Information Furnished under Other Agreements. To the
--------------------------------------------
extent not otherwise provided pursuant to this Section 5.2, all other
information and reports which are furnished by the Company to the lenders in
accordance with the Senior Debt Documents (whether or not still in effect) or
to the holders of the Company's Class A Stock or to the other holders of the
Series B Preferred Stock pursuant to the Original Securities Purchase
Agreement.
5.2.9. Other Information. From time to time upon the reasonable
-----------------
request of any authorized officer of any Principal Holder, the Company will
furnish to any such authorized officer such information regarding the
business, assets or financial condition of the Company and its Subsidiaries
as such officer may reasonably request.
5.2.10. Annual Information Meeting. The Company shall meet each
--------------------------
year with each Principal Holder within 45 days after the release of the
annual operating budget and the audits of the Company for the purpose of
discussing the results of such budgets and audits.
5.3. Conduct of Business. Without the prior written consent of the
-------------------
Required Holders:
-22-
5.3.1. Type of Business. The Company and its Subsidiaries will
----------------
engage only in the business of (a) managing the operations of physician or
dental group practices or other providers of physician or dental services;
(b) managing the operations of lines of diagnostic and treatment businesses
ancillary or related to physician or dental group practices or other
providers of physician or dental services; (c) negotiating and administrating
managed care contracts between insurance companies and other medical payors
and physician or dental group practices or other providers of physician or
dental services; and (d) operating physician practices through the employment
by subsidiaries of physicians and other ancillary personnel. For a period of
one year following the date hereof, the Company will not change its business
activity if such change would render the Company ineligible to receive
financial assistance from a Small Business Investment Company under the Small
Business Investment Act and the regulations thereunder.
5.3.2. Maintenance of Properties, etc. Each of the Company and
------------------------------
its Subsidiaries (a) will keep its properties and assets in such repair,
working order and condition, and will from time to time make such repairs,
renewals, replacements, additions and improvements thereto, as its management
deems reasonably necessary and appropriate; and (b) will comply at all times
in all material respects with the provisions of all Material Contracts
(including its Charter, Bylaws and Material Contracts) applicable to it so as
to prevent any loss or forfeiture thereof or thereunder unless compliance
therewith is being at the time contested in good faith by appropriate
proceedings, or unless the failure so to comply will not result, and is not
reasonably likely to result, in a Material Adverse Effect or any adverse
effect on the rights of the Investor, and (c) will do all things necessary to
preserve, renew and keep in full force and effect and in good standing the
corporate existence and authority of the Company and its Subsidiaries
necessary to continue their respective businesses unless the failure so to
comply will not result, and is not reasonably likely to result, in a Material
Adverse Effect.
5.3.3. Compliance with Laws and Material Contracts. Each of the
-------------------------------------------
Company and its Subsidiaries will comply in all material respects with all
Legal Requirements, as in effect from time to time, applicable to it, except
where compliance therewith shall at the time be contested in good faith by
appropriate proceedings. Each of the Company and its Subsidiaries will
comply in all material respects with all of the covenants and other terms of
each of the Material Contracts.
5.3.4. Insurance. Each of the Company and its Subsidiaries will
---------
keep its assets which are of an insurable character insured against loss or
damage by fire, explosion or other hazards which may be insured against by
extended coverage in an amount sufficient to prevent it from becoming a co-
insurer and in any event not less than 80% of the insurable value of the
property insured, and will maintain insurance against liability to persons
and property and other hazards and risks to the extent and
-23-
in the manner customary for companies in similar businesses similarly
situated. All such insurance shall be provided by reputable insurers
licensed to write insurance in the jurisdiction where the insured entity is
located; provided, however, that the Company and its Subsidiaries may effect
-------- -------
workers' compensation insurance or similar coverage with respect to
operations in any particular state or other jurisdiction through an insurance
fund operated by such state or jurisdiction. The Company will maintain in
effect the key executive life insurance policies referred to in Section 3.6.
5.3.5. Foreign Qualification. Each of the Company and its
---------------------
Subsidiaries will be qualified as a foreign corporation in each jurisdiction
in which it is required to qualify, except for such jurisdictions in which
the failure to be so qualified could not have a Material Adverse Effect.
5.4. Charter Amendment, etc. The Charter and By-laws of the Company
----------------------
and its Subsidiaries shall not be amended without the prior written consent
of the holders of 90% of the Preferred Stock issued pursuant to this
Agreement and the Original Securities Purchase Agreement, if such amendment
has, or would be reasonably likely to have, an adverse effect on any Investor
Securities.
5.5. Merger, Consolidation and Sale of Assets. Neither the Company nor
----------------------------------------
any of its Subsidiaries will become a party to or authorize any merger or
consolidation, or sell, lease, sublease or otherwise transfer or dispose of a
material portion of its assets, or enter into an agreement therefor, or enter
into or authorize any liquidation, dissolution or recapitalization, except
for:
5.5.1. A Liquidity Event.
5.5.2. Any of the following: (a) the merger of a wholly owned
Subsidiary of the Company into the Company or another wholly owned Subsidiary
of the Company; or (b) the merger of a professional practice group into the
Company or into a wholly owned Subsidiary of the Company (or the merger of a
wholly owned Subsidiary of the Company into a professional practice group)
which does not require the approval of the Required Holders pursuant to
Section 5.9.2.
5.5.3. Sales of inventory in the normal course of business.
5.5.4. Other transactions receiving the prior written approval of
the Required Holders.
For purposes of this Section a "material portion of its assets" shall
mean assets having an aggregate fair market value of at least 25% of total
assets of the
-24-
Company and its Subsidiaries on a pro forma basis which are sold, leased,
subleased, transferred or disposed of after the date hereof.
5.6. Indebtedness. Without the prior written consent of the Required
------------
Holders, neither the Company nor any of its Subsidiaries shall incur or
permit Indebtedness to exist or remain outstanding, except for:
5.6.1. Accounts payable for goods, services and taxes incurred in
the ordinary course of business.
5.6.2. Purchase money indebtedness secured by purchase money Liens
(including mortgages, conditional sales, Capitalized Leases and any other
title retention or deferred purchase devices or similar Contractual
Obligations) permitted by Section 5.8.2 in aggregate principal amount
(including Indebtedness in respect of Capitalized Lease obligations) not in
excess of $500,000.
5.6.3. Indebtedness specifically contemplated by the Investor
Agreements or Material Contracts as in effect on the date hereof and
indebtedness outstanding on the date hereof after giving effect to the
transactions contemplated hereby.
5.6.4. Other Indebtedness not to exceed in the aggregate 200% of
Stockholders' Equity, in each case computed as of the date of incurrence of
such Indebtedness.
5.7. Guarantees. Without the prior written consent of the Required
----------
Holders, neither the Company nor any of its Subsidiaries will make, have
outstanding or otherwise become or remain liable with respect to any
Guarantee except for:
5.7.1. Endorsements for collection or deposit in the ordinary
course of business.
5.7.2. Guarantees by the Company of any Indebtedness of its
Subsidiaries, practice groups relating to its Subsidiaries or joint ventures
permitted by this Agreement.
5.7.3. Guarantees specifically contemplated by any of the Material
Contracts, or Guarantees in effect on the date hereof after giving effect to
the transactions contemplated hereby.
-25-
5.8. Liens. Without the prior written consent of the Required Holders,
-----
neither the Company nor any of its Subsidiaries will create or incur or
suffer to be created or incurred or to exist any Lien, except for:
5.8.1. Liens created by the Material Contracts or to secure
Indebtedness refinancing any secured Indebtedness incurred under any Material
Contract, including in any event Liens securing amounts owing by the Company
and its Subsidiaries under the Credit Agreement.
5.8.2. Purchase money Liens (including mortgages, conditional
sales, Capitalized Leases and any other title retention or deferred purchase
devices or similar Contractual Obligations) on assets of the Company or any
of its Subsidiaries existing or created at the time of acquisition thereof,
and Liens securing the renewal, extension and refunding of Indebtedness
secured by assets subject to such a Lien in an amount not exceeding the
amount thereof remaining unpaid; provided, however, that the aggregate
-------- -------
principal amount of Indebtedness (including Indebtedness in respect of
Capitalized Lease obligations) secured by Liens permitted by this Section
5.8.2 shall not exceed the amount permitted by Section 5.6.2, Indebtedness
secured by each such Lien on each asset shall not exceed the cost of the
asset subject thereto and such Lien shall attach solely to the particular
asset so acquired and any additions or accessions thereto.
5.8.3. Liens to secure taxes, assessments and other governmental
charges or claims for labor, material or supplies incurred in the ordinary
course of business.
5.8.4. Deposits or pledges made in connection with, or to secure
payment of, workers' compensation, unemployment insurance, old age pensions
or other social security or in connection with bids or contexts to the extent
incurred in the ordinary course of business.
5.8.5. Encumbrances in the nature of zoning restrictions,
easements, rights or restrictions of record on the use of real property and
landlord's and lessor's liens under leases on the premises rented, which do
not materially detract from the value of such property or impair the use
thereof in the business of the Company or any of its Subsidiaries.
5.8.6. Set-off rights and banker's liens for the benefit of
depository institutions.
-26-
5.8.7. The purchase of accounts receivable by the Company or any
of its Subsidiaries from its Subsidiaries or practice groups relating to its
Subsidiaries.
5.8.8. Other Liens securing amounts not in excess of $100,000.
5.9. Investments and Acquisitions. Except as set forth on Schedule __
----------------------------
to the Credit Agreement, without the prior written consent of the Required
Holders, neither the Company nor any of its Subsidiaries will have
outstanding or acquire or commit itself to acquire or hold any Investment
(including the acquisition of any other business) except for:
5.9.1. Investments of the Company and its Subsidiaries in: (a)
negotiable certificates of deposit, time deposits, money market accounts and
bankers' acceptances issued by any United States bank or trust company,
having a combined capital, surplus and undivided profits of not less than
$100,000,000; (b) short-term corporate obligations rated Prime-1 by ▇▇▇▇▇'▇
Investors Service Inc. or A-1 by Standard & Poor's Ratings Group; (c) any
direct obligation of the United States of America or any agency or
instrumentality thereof (i) which has a remaining maturity at the time of
purchase of not more than one year or (ii) which is subject to a repurchase
agreement with a bank described in clause (a) above exercisable within one
year from the time of purchase; and (d) any registered investment company
substantially all of the assets of which consists of Investments described in
clauses (a), (b) and (c) above.
5.9.2. Investments of the Company to acquire Subsidiaries or make
other acquisitions or to invest in joint ventures for an aggregate
consideration not exceeding 50% of total assets of the Company and its
Subsidiaries on the date hereof unless any such acquisition of a professional
practice group does not involve an acquisition price exceeding 600% of the
net anticipated annual contribution to the Company from such practice group.
5.9.3. Loans and advances to employees not in excess of $50,000 in
the aggregate at any one time outstanding.
5.9.4. Investments in any of the Company's Subsidiaries listed in
Exhibit 4.2.2 or acquired in accordance with the other provisions of this
Section 5.9.
5.9.5. The purchase of accounts receivable and the extension of
credit by the Company and its Subsidiaries under customary terms in physician
practice management agreements relating to its Subsidiaries.
-27-
5.10. Distributions. Without the prior written consent of the Required
-------------
Holders, neither the Company nor any of its Subsidiaries shall make any
Distribution except:
5.10.1. Any Subsidiary may make Distributions to the Company or to
any wholly owned Subsidiary which is its immediate parent, or to any other
Subsidiary to the extent permitted by the Credit Agreement.
5.10.2. The Company may repurchase shares of Common Stock in
accordance with the Stockholders Agreement.
5.10.3. The Company may pay dividends on, and make required
redemptions of, the Preferred Stock in accordance with its terms.
5.10.4. The Company may repurchase shares of Common Stock from its
employees at cost or fair market value upon termination of employment.
5.10.5. The Company may make redemptions of Class A Stock pursuant
to the terms of its Charter, as now in effect, in accordance with the
Material Contracts as now in effect.
5.11. Capital Expenditures. Without the prior written consent of the
--------------------
Required Holders, the Company and its Subsidiaries will not make Capital
Expenditures in any fiscal quarter which exceed 125% of the Capital
Expenditures provided in the Projections for such quarter.
5.12. [Intentionally omitted]
5.13. Stock Issuance, etc. Except with the prior written consent of the
-------------------
Required Holders, neither the Company nor any Subsidiary will (a) issue,
sell, give away, transfer, pledge, mortgage, assign or otherwise dispose of,
(b) grant any rights (either preemptive or other) or options to subscribe for
or purchase, or (c) enter into any agreements or issue any warrant providing
for the issuance of any of the capital stock of the Company or any stock or
securities convertible into or exchangeable for any of the capital stock of
the Company, other than as specifically contemplated by the Investor
Agreements or the Material Contracts, including but not limited to (i)
issuance of shares of Common Stock upon conversion of shares of Non-Voting
Common Stock, Prime Common Stock or Class A Stock; (ii) issuance of shares of
Non-Voting Common Stock upon conversion of shares of Common Stock; (iii)
issuance of shares of Common Stock upon exercise or conversion of warrants
issued on or prior to the date hereof to the lenders under the Subordinated
Loan Agreement and the investors party to the Class A Stock and Warrant
Purchase Agreement, dated December 29, 1995 by and among
-28-
the Company, EGL Holdings, Inc., Mercury Asset Management PLC, NatWest
Ventures Investments Limited and certain stockholders of the Company, the
Original Securities Purchase Agreement and this Agreement and (iv) shares of
Common Stock and Prime Common Stock issued in connection with acquisitions
permitted by Section 5.9.2. The Company shall issue options for, or shares
of, Common Stock only upon direction of the Compensation Committee of the
Company's Board of Directors, including the approval of the Preferred
Director who is a member thereof. Except as specifically contemplated by the
Material Contracts, the Company shall not, and shall not subject itself to
any obligation to, repurchase or otherwise acquire or retire any shares of
the capital stock of the Company or any securities convertible into or
exchangeable for any of the capital stock of the Company. On or before
January 31 of each year, the Company shall provide the Principal Holders with
an annual schedule of its authorized capital stock in the form of Exhibit
4.3.1 as of December 31 of the preceding calendar year.
5.14. Amendment of Material Contracts, etc. Except with the prior
------------------------------------
written consent of the Required Holders, the Company shall not agree to any
amendment or modification of, or grant any waiver or fail to enforce any of
its rights pursuant to, any of the Material Contracts if such amendment,
modification, waiver or failure has or could have, directly or indirectly,
any Material Adverse Effect or any material adverse effect on any holder of
any then outstanding Investor Securities or on the rights, remedies or
interests of such holder hereunder or under any of the Material Contracts.
Except to the extent prohibited by the Company's principal senior bank credit
facility as from time to time in effect, neither the Company nor any of its
Subsidiaries shall remain or become a party to or be bound by any agreement,
deed, lease or other instrument which imposes any restriction or limitation
on Distributions that are required to be made by the Company on or in respect
of the Investor Securities or which restricts the ability of the Company's
Subsidiaries to pay dividends or to make advances to the Company; provided,
--------
however, that the Company and its Subsidiaries may become and remain party to
-------
the Material Contracts as in effect on the date hereof, with such changes
therein as the Required Holders may agree to in writing, and may perform
their respective obligations thereunder to the extent not otherwise
inconsistent with the Investor Agreements. Except to the extent required by
applicable law, neither the Company nor any of its Subsidiaries shall
transfer any of its surplus to capital if as a result thereof the Company's
ability to perform any of the terms of the Investor Agreements would be
impaired.
5.15. Transactions with Affiliates. Except for transactions expressly
----------------------------
contemplated by the Investor Agreements, without the prior written consent of
the Required Holders, neither the Company nor any of its Subsidiaries shall
effect or remain obligated with respect to any transaction with any Affiliate
other than with the Company or any Subsidiary of the Company except on terms
no less favorable to the
-29-
Company or any of its Subsidiaries than it could obtain in an arm's-length
transaction with an unrelated party.
5.16. Compliance with ERISA, etc. Except with the prior written consent
--------------------------
of the Required Holders, the Company and its Subsidiaries will meet all
minimum funding requirements applicable to the Pension Plans imposed by ERISA
or the Code (without giving effect to any waivers of such requirements or
extensions of the related amortization periods which may be granted) and will
at all times comply in all material respects with all other provisions of
ERISA and the Code which are applicable to the Pension Plans and the Employee
Benefit Plans.
5.17. SBA Requirements. To the extent required, in the reasonable
----------------
judgment of the Investor, to avoid a Regulatory Problem:
5.17.1. Inspection. The Company covenants and agrees that it will
----------
permit the Investor and its permitted transferees and its and their
representatives (including without limitation, examiners from the Small
Business Administration) to inspect the properties of the Company and to
examine and make extracts and copies from the books and records of the
Company during normal business hours (including, without limitation, for
purposes of verifying the certifications and representations made by the
Company in the SBA Forms and this Agreement and verifying compliance with the
covenants contained in this Agreement). For the purpose of conducting
independent investigations pursuant to this Section, the Company shall make
available to an authorized officer of the Investor upon reasonable notice and
at reasonable times (a) the Chief Financial Officer or the Chief Executive
Officer of the Company; and (b) any other officers, accountants and internal
control personnel of the Company. The Company shall use reasonable efforts
to make available for such purpose any directors of the Company who are not
officers.
5.17.2. Information. In addition, the Company covenants and agrees
-----------
to provide to the Investor any other information which the Investor
reasonably requests, including without limitation, at least annually,
sufficient financial and other information necessary to allow the Investor to
evaluate the financial condition of the Company for the purpose of valuing
the Investor's interest in the Company, to determine the continued
eligibility of the Company under the Small Business Investment Act and the
regulations thereunder, including 13 CFR 121.301, and to verify the use of
the proceeds received by the Company from the purchase of the Investor
Securities. All such information shall be certified by the President, Chief
Executive Officer, Treasurer or Chief Financial Officer of the Company.
Promptly after the end of each fiscal year of the Company (and in any event
prior to February 28 of each year), the Company shall provide to the Investor
a written assessment in form and substance satisfactory to the Investor of
the economic impact of the financing assistance provided
-30-
to the Company by the Investor, specifying the full time equivalent jobs
created or retained, and the impact of the financing on the revenues and
profits of the business and on taxes paid by the business and its employees.
Upon the request of the Investor the Company will also provide all
information requested by the Investor in order for it prepare and file SBA
Form 468 and any other information requested or required by any governmental
agency asserting jurisdiction over the Investor.
5.17.3. Non-Discrimination. The Company will at all times comply
------------------
with the nondiscrimination requirements of 13 CFR, Parts 112, 113 and 117.
5.17.4. Right of First Offer. In the event the Investor has the
--------------------
right to purchase any Restricted Shares pursuant to Section 2 of the
Stockholders' Agreement, but is prohibited from exercising such right under
the Small Business Investment Act, or the regulations promulgated thereunder,
the Investor may assign such right to the Company and upon such assignment
the Company shall, subject to any legal or contractual restrictions, purchase
such Restricted Shares and promptly sell to the Investor such Restricted
Shares, or if requested by the Investor, securities that do not have voting
rights but otherwise have the same terms as such Restricted Shares and which
are convertible or exercisable into voting securities on such conditions as
are requested by the Investor in light of the regulatory considerations
prevailing, for the purchase price upon which such Restricted Shares were
purchased by the Company.
5.18. Annual Meeting. Except with the prior written consent of the
--------------
Required Holders, within 90 days after the Company's annual financial
statements are required to be furnished in accordance with Section 5.2.1 and
on not less than 10 days prior written notice, the Company will hold an
annual meeting for the benefit of its stockholders, including each holder of
Investor Securities. At such annual meeting the principal executive,
financial and operations officers of the Company and its Subsidiaries will
present a review of, and will discuss with those in attendance, in reasonable
detail, the general affairs, management, financial condition, results of
operations and business prospects of the Company and its Subsidiaries.
5.19. Listing of Shares. If the shares of Common Stock issuable upon
-----------------
conversion of the Preferred Stock or upon exercise or conversion of the
Warrants require listing on any national securities exchange or quotation
system, except with the prior written consent of the Required Holders, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be listed or duly approved for listing on
such national securities exchange or quotation system, subject to official
notice of issuance of such shares.
5.20. Real Property Holding Corporation. Without the prior written
---------------------------------
consent of the Required Holders, neither the Company nor any of its
Subsidiaries shall
-31-
become a "United States real property holding corporation" as defined in
section 897(c)(2) of the Code and Treasury Regulation section 1.897-2(b).
5.21. Regulatory Compliance Cooperation.
---------------------------------
5.21.1. Exchange for Nonvoting Securities. In the event that the
---------------------------------
Investor determines that it has a Regulatory Problem, the Company shall use
reasonable efforts to take such actions as are reasonably requested by the
Investor in order (a) to effectuate and facilitate any transfer by the
Investor of any Investor Securities then held by the Investor to any Person
designated by the Investor, and (b) to permit the Investor (or any affiliate
of the Investor) to exchange all or any portion of the voting Investor
Securities then held by such Person on a share-for-share basis for shares of
a class of nonvoting securities of the Company, which nonvoting securities
shall be identical in all respects to such voting Investor Securities, except
that such new securities shall be nonvoting and shall be convertible into
voting securities on such terms as are reasonably requested by the Investor
in light of regulatory considerations then prevailing. Such actions may
include, but shall not necessarily be limited to:
(i) entering into such additional agreements as are
requested by the Investor to permit any Person designated by
the Investor to exercise any voting power which is relinquished
by the Investor upon any exchange of voting Investor Securities
for nonvoting securities of the Company; and
(ii) entering into such additional agreements, adopting
such amendments to the Charter and bylaws of the Company and
taking such additional actions as are reasonably requested by
the Investor in order to effectuate the intent of the
foregoing.
5.21.2. Future Securities Issuances. In the event the Investor has
---------------------------
the right to acquire any securities of the Company (as the result of a
preemptive offer, pro rata offer or otherwise), at the Investor's request the
Company will offer to sell to the Investor non-voting securities on the same
terms as would have existed had the Investor acquired the securities so
offered and immediately requested their exchange for non-voting securities
pursuant to Section 5.21.1. The Company shall grant to any subsequent holder
of Investor Securities originally acquired by any Investor, upon such
Person's request, the same rights granted to the Investor pursuant to this
Section 5.21. In the event that any Subsidiary of the Company ever offers to
sell any of its securities, then the Company will cause such Subsidiary to
enter into agreements with the Investor substantially similar to this Section
5.21.
-32-
5.22. Environmental Laws. Except with the prior written consent of the
------------------
Required Holders:
5.22.1. Compliance with Law and Permits. Each of the Company and
-------------------------------
its Subsidiaries shall use and operate all of its facilities and properties
in material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations relating
to environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with all
applicable Environmental Laws.
5.22.2. Notice of Claims, etc. Each of the Company and its
---------------------
Subsidiaries shall immediately notify each Principal Holder, and provide
copies upon receipt, of all material written claims, complaints, notices or
inquiries from governmental authorities relating to the condition of its
facilities and properties or compliance with Environmental Laws, and shall
use reasonable efforts to promptly cure and have dismissed with prejudice to
the reasonable satisfaction of the Required Holders any actions and
proceedings relating to compliance with Environmental Laws.
5.23. Compliance Program. Except with the prior written consent of the
------------------
Required Holders, the Company will implement procedures designed to detect
and deter potential violations of the Ethics in Patient Referrals Act, 42
U.S.C. (S) 1395nn et seq., the Medicare and Medicaid Anti-Kickback Statute,
42 U.S.C. (S) 1320a-7b and other applicable health care and federal laws
(collectively, the "Applicable Health Care Laws"), including:
---------------------------
(a) annual distribution of a comprehensive set of guidelines for
physicians or dentists employed by the Company regarding proper
compliance with the Applicable Health Care Laws;
(b) establishment of a "Compliance Committee" of the board of
directors comprised solely of physician and management
representatives; and
(c) engagement of qualified professional advisers to review
operations and acquisitions by the Company or its Subsidiaries.
5.24. Acquisition Diligence. Except with the prior written consent of
---------------------
the Required Holders, at least 10 days prior to the acquisition of any
physician or dental group practices or assets relating to physician or dental
services, the Company shall deliver to each Principal Holder:
-33-
(a) A term sheet summarizing the principal terms of the
acquisition.
(b) A due diligence memorandum which summarizes the billing,
referral and other operational practices of the physician or dental
practices or assets to be acquired and which provides a thorough legal
analysis of the application of the Applicable Health Care Laws to such
practices; and
(c) A memorandum which describes anticipated billing, referral
and other operational practices of the physician or dental practices
or assets to be acquired upon consummation of the acquisition and
which provides a thorough legal analysis of the application of the
Applicable Health Care Laws to such anticipated practices.
5.25. Shares Reserved. The Company shall at all times keep authorized
---------------
and duly reserved sufficient shares of the Company's Common Stock for
issuance upon conversion of the Series B Preferred Stock and Warrants. The
Company shall take any and all actions necessary to remain in compliance with
this Section 5.25.
6. INVESTOR SECURITIES; RESTRICTIONS ON TRANSFER.
6.1. Representations and Warranties of the Investor. The Investor
----------------------------------------------
represents and warrants to the Company that:
(a) It is an "accredited investor" for purposes of Regulation D
under the Securities Act and that it is acquiring the Investor
Securities at the Closing for investment for its own account, and not
with a view to selling or otherwise distributing the Investor
Securities in violation of the Securities Act; provided, however, that
-------- -------
nothing shall prevent the Investor from transferring the Investor
Securities in compliance with this Section 6; and provided, further,
-------- -------
that the disposition of the Investor's property shall at all times
remain in the Investor's control.
(b) It has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof.
(c) It has had an opportunity to discuss the Company, business,
management and financial affairs with the Company's management and has
received (or had made available to it) any financial and business
documents requested by it.
-34-
(d) It understands that (i) the Investor Securities purchased by
it have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to section 4(2) thereof or
Rules 505 or 506 under the Securities Act, (ii) such Investor
Securities must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration, (iii) such Investor Securities will bear a legend to
such effect and (iv) the Company will make a notation on its transfer
books to such effect.
(e) All offers to purchase the Investor Securities were made to
it in the State of New York.
(f) It has no contract, arrangement or understanding with any
broker, finder or similar agent with respect to the transactions
contemplated by this Agreement.
6.2. Home Office Payment. All payments made in respect of the Investor
-------------------
Securities held by the Investor shall be paid by Company check or wired to
the address of the Investor given in Section 8 hereof, accompanied by
sufficient information to identify the source and application thereof or by
such other method or at such other address as the Investor shall have from
time to time given timely notice of to the Company.
6.3. Replacement of Lost Securities. Upon receipt of evidence
------------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Investor Security and, in the case of any such loss, theft
or destruction, upon delivery of an unsecured indemnity agreement from the
Investor or such other holder reasonably satisfactory to the Company or, in
the case of any such mutilation, upon the surrender of the security for
cancellation to the Company at its principal office, the Company at its
expense will execute and deliver in lieu thereof a new security of like
tenor. Any security in lieu of which any such new security has been so
executed and delivered by the Company shall not be deemed to be outstanding
for any purpose.
6.4. Transfer, Exchange and Conversion of Investor Securities. The
--------------------------------------------------------
Company shall keep at its principal office a register in which shall be
entered the names and addresses of the holders of the capital stock and other
Investor Securities of the Company and particulars of the respective shares
of Common Stock, Preferred Stock (including the classes thereof), Warrants
and other Investor Securities held by them and of all transfers, exchanges,
conversions and redemptions of such securities. Upon surrender at such
office or such other place as shall be duly specified by the Company of any
certificate representing shares of capital stock or instrument evidencing any
other
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Investor Securities for exchange, conversion or (subject to compliance with
the applicable provisions of this Agreement, including the conditions set
forth in Section 6.5) transfer, the Company shall as appropriate issue, at
its expense, one or more new certificates or instruments in such denomination
or denominations as may be requested, and registered as such holder may
request. Any certificate representing shares of capital stock or instrument
evidencing any other Investor Securities surrendered for transfer shall be
duly endorsed, or accompanied by a written instrument of transfer duly
executed by the holder of such certificate or instruments or an attorney duly
authorized in writing. The Company will pay shipping and insurance charges,
from and to each holder's principal office, upon any transfer, exchange or
conversion provided for in this Section 6.4.
6.5. Restrictions on Transfer. Investor Securities shall be
------------------------
transferable only upon satisfaction of the applicable conditions specified in
this Section 6.5 or unless sold in an offering registered under the
Securities Act or pursuant to an exemption from the registration requirements
of the Securities Act.
6.5.1. Restrictive Legend. Except as otherwise permitted by
------------------
Section 6.5.3, each certificate or instrument representing Investor
Securities shall bear a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under the securities laws of any state, and may not be sold, or
otherwise transferred, in the absence of such registration or
an exemption therefrom under such Act and under any such
applicable state laws. In addition, the shares represented by
this certificate are subject to restrictions on transfer
contained in a Securities Purchase Agreement dated as of
October __, 1997, a copy of which is available at the issuer's
office and will be furnished free of charge to the holder
hereof."
6.5.2. Notice of Proposed Transfer Obligations of Counsel. Prior
--------------------------------------------------
to any transfer of any Investor Securities other than pursuant to an
effective registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention to effect
such transfer, describing in reasonable detail the manner of the proposed
transfer. If any such holder delivers to the Company (a) an opinion of
counsel in form and substance reasonably acceptable to the Company addressed
to the Company to the effect that the proposed transfer may be effected
without registration of such Investor Securities under the Securities Act or
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applicable state securities laws (or a certificate of an officer of such
holder that the transfer is being made to a wholly owned Subsidiary of the
holder's corporate parent) and (b) the written agreement of the proposed
transferee to be bound by all of the terms and conditions of this Agreement
(including this Section 6.5) applicable to the Investor, such holder shall
thereupon be entitled, within 10 days thereafter, to transfer such Investor
Securities in accordance with the terms of this Agreement and the notice
delivered by such holder to the Company. Each certificate or instrument
issued upon or in connection with such transfer shall bear the restrictive
legend set forth in Section 6.5.1, in each case unless the restrictions on
transfer provided for in Section 6.5 shall have terminated as to such
Investor Securities pursuant to Section 6.5.3.
6.5.3. Termination of Restrictions. The restrictions imposed by
---------------------------
Sections 6.5.1 and 6.5.2 upon the transferability of Investor Securities
shall terminate as to any particular Investor Securities and any securities
issued in exchange therefor or upon transfer thereof when, in the opinion of
counsel reasonably acceptable to the Company, such restrictions are no longer
required in order to assure compliance with the Securities Act. Whenever any
of such restrictions shall terminate as to any Investor Securities, the
holder thereof shall be entitled to receive from the Company, without
expense, new certificates or instruments not bearing the legend set forth in
Section 6.5.1.
7. EXPENSES, ETC.
7.1. Expenses. The Company hereby agrees to pay within 15 business
--------
days after receipt of a detailed written invoice all reasonable out-of-pocket
expenses incurred by the Investor in connection with the transactions
contemplated by the Investor Agreements and by the Investor in connection
with any amendments or waivers (whether or not the same become effective)
hereof and all expenses incurred by the Investor or any holder of any
Investor Securities issued hereunder in connection with the enforcement in
good faith of any rights hereunder or under any other Investor Agreement,
including the reasonable fees, expenses and disbursements of the Investor's
special counsel in connection with the transactions contemplated by this
Agreement, and all taxes (other than taxes determined with respect to
income), including any recording fees and filing fees and documentary stamp
and similar taxes, at any time payable in respect of this Agreement, any
other Investor Agreement or the issuance of any of the Investor Securities.
7.2. Indemnification. The Company shall indemnify and hold the
---------------
Investor and the Investor's partners, stockholders, officers, directors,
employees, attorneys, accountants, consultants and agents (collectively, the
"Indemnitees") free and harmless from and against all actions, causes of
-----------
action, suits, litigation, losses, liabilities and damages, investigations or
proceedings instituted by any governmental
-37-
agency or any other Person and expenses in connection therewith, including
reasonable attorneys' fees and disbursements, incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any transaction financed or
to be financed in whole or in part directly or indirectly with proceeds from
the sale by the Company of any of the Investor Securities, or (b) the
execution, delivery, performance or enforcement of this Agreement or any
instrument contemplated hereby by any of the Indemnitees, except in each such
case for any such indemnified liabilities arising on account of any
Indemnitee's gross negligence or willful misconduct.
7.3. Environmental Indemnification. Without limiting Section 7.2, the
-----------------------------
Company covenants and agrees that it will indemnify and hold the Indemnitees
harmless from and against any and all claims, expense, damage, loss or
liability incurred by the Indemnitees (including all costs of legal
representation) relating to (a) any release or threatened release of
Hazardous Material; (b) any violation of any Environmental Laws with respect
to the assets of the Company and its Subsidiaries or the operations conducted
by them; or (c) the investigation or remediation of offsite locations at
which the Company, any of its Subsidiaries or their predecessors are alleged
to have directly or indirectly disposed of Hazardous Materials.
7.4. Survival. The obligations of the Company under this Section 7
--------
shall survive the redemption, repurchase or transfer of any or all of the
Investor Securities.
8. NOTICES. Any notice or other communication in connection with this
Agreement or the Investor Securities shall be deemed to be delivered if in
writing addressed as provided below and if either (a) actually delivered at
such address, (b) in the case of a letter, seven business days shall have
elapsed after the same shall have been deposited in the United States mails,
postage prepaid and registered or certified, return receipt requested or (c)
transmitted to any address outside of the United States, by telecopy and
confirmed by overnight or two-day courier: telecopy:
If to the Company, to it at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: CEO, telecopy: (▇▇▇) ▇▇▇-▇▇▇▇, telephone: (770)
▇▇▇-▇▇▇▇, or at such other address as the Company shall have specified by
notice actually received by the Investor.
If to the Investor, to it at Paribas Principal Incorporated, ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇, telecopy: (212)
▇▇▇-▇▇▇▇, telephone: (▇▇▇) ▇▇▇-▇▇▇▇, or at such other address as the Investor
shall have specified by notice actually received by the Company.
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If to any other holder of record of any Investor Security, to it at its
address set forth in the securities registers of the Company.
9. CONFIDENTIALITY. The Investor will maintain the confidential nature of
information obtained from the Company concerning the Company and its
Subsidiaries; provided, however, that the Investor shall not be precluded
-------- -------
from making disclosure regarding such information: (a) to counsel for the
Investor, accountants or other professional advisors on a need-to-know
basis, provided that such advisors are advised of the confidential nature of
this information, (b) to any other holder of Preferred Stock, (c) as required
by law or applicable regulation, (d) to any participant in or assignee of any
Investor Securities after notice to the Company so long as such participant
or assignee has agreed to be bound by this Section 9 or (e) to the extent
such information has become publicly available other than as a result of the
violation of this Section 9.
10. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only
with the written consent of the Investor. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each holder of any
Investor Securities and the Company and each of its Subsidiaries.
11. SURVIVAL AND TERMINATION OF COVENANTS, REPRESENTATIONS AND WARRANTIES.
All covenants, agreements, representations and warranties made herein or in
any closing certificate or other certificate or written report delivered to
the Investor pursuant to an express requirement hereof shall be deemed to
have been material and relied on by the Investor, notwithstanding any
investigation made by the Investor or on the Investor's behalf, shall survive
the Closing Date and shall terminate upon the closing of a Liquidity Event,
except as specifically provided otherwise herein.
12. SERVICE OF PROCESS. Each of the Company and the Investor (a) irrevocably
submits to the non-exclusive jurisdiction of the state courts of The State of
New York and to the non-exclusive jurisdiction of the United States District
Court for the Southern District of New York, for the purpose of any suit,
action or other proceeding arising out of or based upon this Agreement, any
other Investor Agreement or the subject matter hereof or thereof brought by
any party hereto or such party's successors or assigns, and (b) waives to the
extent not prohibited by law that cannot be waived, and agrees not to assert,
by way of motion, as a defense, or otherwise, in any such proceeding, any
claim that it is not subject personally to the jurisdiction of the above-
named courts, that its property is exempt or immune from attachment or
execution, that any such proceeding brought in one of the above-named courts
is
-39-
improper, or that this Agreement or the Investor Securities, or the subject
matter hereof or thereof, may not be enforced in or by such court. Each of
the Company and the Investor consents to service of process in any such
proceeding in any manner permitted under the Laws of The State of New York,
and agrees that service of process registered or certified mail, return
receipt requested, at its address specified in or pursuant to Section 8 is
reasonably calculated to give actual notice.
13. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, THE INVESTOR AND THE COMPANY HEREBY WAIVE, AND
COVENANT THAT NEITHER THE COMPANY NOR THE INVESTOR WILL ASSERT, ANY RIGHT TO
TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT
OR OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER INVESTOR
AGREEMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR IN ANY WAY CONNECTED
WITH, RELATED OR INCIDENTAL TO THE DEALINGS OF THE INVESTOR AND THE COMPANY
HEREUNDER OR THEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company
acknowledges that it has been informed by the Investor that the provisions of
this Section 13 constitute a material inducement upon which the Investor is
relying and will rely in entering into this Agreement and purchasing the
Investor Securities pursuant hereto. The Investor or the Company may file an
original counterpart or a copy of this Section 13 with any court as written
evidence of the consent of the Investor and the Company to the waiver of its
right to trial by jury.
14. GENERAL. The invalidity or unenforceability of any provision hereof
shall not affect the validity or enforceability of any other term or
provision hereof, and any invalid or unenforceable provision shall be
modified so as to be enforced to the maximum extent of its validity or
enforceability. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.
This Agreement, the other Investor Agreements and the other items referred to
herein or therein constitute the entire understanding of the parties hereto
with respect to the subject matter hereof and thereof and supersede all
present and prior agreements, whether written or oral. This Agreement is
intended to take effect as a sealed instrument and may be executed in any
number of counterparts which together shall constitute one instrument and
shall be governed by and construed in accordance with the laws (other than
the conflict of laws rules) of The State of New York, and shall bind and
inure to the benefit of the parties hereto and their respective successors
and assigns. Whether or not any express assignment has been made of this
Agreement, provisions of this Agreement that are for the Investor's benefit
as the holder of any
-40-
Investor Securities are also for the benefit of, and enforceable by, all
subsequent holders of Investor Securities. Notwithstanding anything to the
contrary contained herein, the Investor acknowledges and agrees that the
Senior Debt Documents and all of the agreements relating to and including the
Subordinated Loan Agreement shall be executed and delivered by the parties
thereto, and the Company shall be deemed to be in compliance with each
representation and warranty contained in this Agreement which is otherwise
breached solely as a result of the execution of such agreements or the
existence of the Liens created thereby.
-41-
Signature Page to
-----------------
Securities Purchase Agreement
-----------------------------
The undersigned have executed this Agreement under seal as of the date
first above written.
PHYSICIAN HEALTH CORPORATION
By
-------------------------------------------
Title:
PARIBAS PRINCIPAL INCORPORATED
By:
-------------------------------------------
Title:
WESTON PRESIDIO CAPITAL II, L.P., as custodian
of the Securities Escrow
By:
-------------------------------------------
Title:
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